Being well-versed in cryptocurrency will help you navigate new investment opportunities, align with regulatory shifts, and meet the demands of a transforming financial landscape. In 2023, with crypto transaction payment value growing 16.0% to $9.28 billion worldwide (per Insider Intelligence’s April 2023 forecast), many major banking and payments players are doubling down on their commitment to digital currencies, even as US federal regulation gains momentum. 

What is cryptocurrency?

Crypto is a digital form of money, which operates on a decentralized network known as blockchain and is secured by cryptography. Unlike traditional currency, crypto functions without central authorities, making it an increasingly popular choice for online transactions and investments.

The benefits of cryptocurrencies 

The rise of crypto has reshaped the financial landscape, bringing about a new era of digital assets that present both opportunities and challenges for investors.  

Here are three key advantages that illustrate why crypto is garnering increased attention and acceptance:

  • Decentralized finance enables control and privacy, free from central authority interference. 
  • Lower transaction costs facilitate peer-to-peer transactions, often reducing fees and processing times. 
  • The potential for investment growth offers opportunities for high returns in a diversified investment portfolio.

Examples of cryptocurrencies 

The world of crypto continues to expand, but Bitcoin—currently the most valuable and most prolific cryptocurrency—remains at the forefront. In 2023, 78.8% of crypto owners will own Bitcoin (according to Insider Intelligence’s April 2023 forecast), and is expected to pass the 80% milestone next year. 

Here are three noteworthy examples of crypto, each offering distinct features and applications: 

  • Bitcoin (BTC): The original and most well-known crypto, Bitcoin was created in 2009 by an anonymous entity known as Satoshi Nakamoto. As a decentralized digital currency without a central bank, Bitcoin has become a symbol of the broader potential of blockchain technology and cryptographic security.
  • Ethereum (ETH): Launched in 2015, Ethereum is not just a crypto but also a platform that enables the creation of decentralized applications using smart contracts. These self-executing contracts have the terms of an agreement written directly into code, allowing for automation and innovation in various fields.
  • Tether (USDT): Tether is a stablecoin, a type of crypto that’s pegged to traditional fiat currencies like the US dollar. Launched in 2014, Tether aims to combine the benefits of digital currencies with the stability of traditional ones, providing a bridge between the crypto and conventional financial worlds.

What finance professionals need to know about crypto 

The crypto markets faced significant turbulence in 2022, with investor panic, reminiscent of bank runs, exposing underlying liquidity concerns and the absence of tangible collateral. These challenges, combined with regulatory scrutiny, have prompted several financial institutions to reevaluate their crypto endeavors. Despite these setbacks, nearly 10% of the US population will own crypto by 2024, according to Insider Intelligence’s April 2023 forecast, accounting for 26.0 million investors.

Challenges for the market endured through 2023, marked by the downfall of FTX—once the world’s second-largest crypto exchange—as well as intensified regulatory scrutiny and global concerns about its environmental impact. The sudden collapse of FTX, in particular, drew attention to the unpredictability and inherent risks associated with the digital assets industry. Adding to the crypto volatility, government bodies have been tightening their grip, introducing a slew of measures aimed at bringing transparency and accountability to the industry—all while environmental activists raise alarms about the extensive energy consumption associated with crypto transactions.

How does crypto work? 

Crypto operates on decentralized networks using blockchain technology, a shared digital ledger that records transactions across multiple computers. This structure, secured by cryptography, allows for peer-to-peer exchanges without the need for traditional banking intermediaries, ensuring transparency and often more efficient transactions.

What are crypto payments?

Crypto payments are transactions made using digital currencies. Utilizing blockchain technology, these peer-to-peer payments are processed without traditional banking intermediaries, often resulting in quicker and potentially lower-cost transactions. 

Its decentralized nature has been touted for providing user security. But the lack of centralized control also allows crypto firms to operate outside of existing regulatory frameworks, opening users to fraud and abuse.

Who is buying crypto?

As of 2023, 57.6% of US crypto owners are millennials, followed by Gen Xers, who represent 19.8%. In 2024, Gen Zers are expected to grow and surpass Gen Xers, making up 20.6% of overall crypto owners. 

Gen Z is leading the charge in crypto payments, with 15.9% having paid with crypto in 2021 (according to the Federal Reserve), significantly outpacing both millennials and Gen Xers. As digital wallets like Venmo introduce more crypto functionalities, this young generation is poised to further drive the adoption and use of crypto payments.

Are central bank digital currencies (CBDCs) cryptocurrencies?

A CBDC is an asset class of crypto that is offered by central banks. Because CBDCs are tied to a country’s national currency, there is less volatility risk than what’s traditionally associated with crypto. They offer the same blockchain-related benefits of crypto, like fast transactions, low cost, and potentially high security.