A day scarcely passes without you hearing something about Bitcoins or other types of cryptocurrencies in the media. Cryptocurrency is a type of digital currency that you can buy and sell. Unlike most currencies, cryptocurrency is not centrally issued by a particular government or issuing authority. Nor do they have much regulation, as they are private and transcend borders. As a result, their values can fluctuate wildly. We have created our cryptocurrency profit estimator to give you a guide as to the worth of your cryptocurrency investment.

To many people, the term “cryptocurrency” means Bitcoins. Yet, Bitcoins are merely the best known of many types of cryptocurrencies. Indeed, our crypto profit calculator currently makes calculations for 20 types of cryptocurrencies.

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Crypto Profit Calculator - Cryptocurrency Profit Estimator:

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Our Crypto Profit calculator calculates the current value of your cryptocurrency investment. 

Enter the date when you purchased your cryptocurrency and your invested amount. Then select your type of cryptocurrency from the drop-down list. For example, if you have Bitcoin, select BTC or pick ETH for Ethereum. If you bought different kinds of cryptocurrency on a date, you would need to make a separate calculation for each one. Likewise, if you purchased cryptocurrency on multiple dates over time, you would have to make a different calculation for each of your purchase dates.

Once you’ve entered your purchase date, the amount invested, and type of cryptocurrency, push Calculate, and our Crypto Profit Calculator will tell you the current value of your investment and your return. It will also graph your investment value over the time you have held it and compare what you have earned to what you would have received if you had instead invested in a selection of top stocks.

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What is Cryptocurrency?

According to Investopedia,

cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Therefore, cryptocurrency is a digital asset created on and distributed across an extensive network of computers in many different locations. The process of creating new cryptocurrency units is called mining. Unlike other currencies, cryptocurrencies are privately created and stored, and their global intangible nature makes them extremely difficult for governments to control. 

If you own cryptocurrency, you don’t own anything tangible. Instead, you hold the key to a digital record and the right to transfer that ownership to somebody else when you want.

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Mining Cryptocurrency – Why Don’t You Just Make Your Own Money?

You can gain cryptocurrency by mining it or purchasing from a dealer like a cryptocurrency exchange. You might wonder why everybody doesn’t just mine their own and earn some “free” money. The main problem is that you need highly sophisticated computer hardware to mine cryptocurrency, well beyond the capabilities of a typical person’s computer. 

Mining involves solving a highly complex computational math problem. The first computer to solve the problem receives a block of cryptocurrency, and then the computers move on to solving a different calculation. In many ways, this is comparable with old-style gold mining, where you competed with fellow prospectors and syndicates to be the first to a new gold seam.

Why does cryptocurrency mining need to be so complex? First, you need multiple people worldwide to legitimize and keep track of all transactions of that batch of cryptocurrency from creation day forward. Unlike traditional currencies, you don’t have any central bank or government to regulate the cryptocurrency; therefore, you need exceptionally complex calculations involving thousands of computers to ensure everything is correct and your investment remains safe.

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Centralized vs. Decentralized Currency

Although our Cryptocurrency Profit Estimator can calculate your investment earnings on 20 types of cryptocurrencies, these are just the most popular types of digital currencies. There are now thousands of different types of digital currencies that only exist in electronic form. Although all cryptocurrencies are examples of digital currency, not all digital currencies are cryptocurrencies. 

Currencies can be centralized or decentralized. Centralized currencies are typically produced and distributed by a central bank or government agency. Fiat money (government-issued currency, not backed by a physical commodity, such as gold or silver) is centralized. For example, the Federal Reserve manages the $US money supply in the United States.

Cryptocurrencies, however, are examples of decentralized currency. There is no national organization tasked with controlling the supply of cryptocurrencies. Instead, the system relies on the vast network of computers, making complicated and resource-intensive calculations to ensure the system keeps its integrity.

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Buying Cryptocurrency

You typically choose to buy cryptocurrency from either a traditional broker or a specialist cryptocurrency exchange. Many online brokers offer to buy and sell cryptocurrencies along with more traditional investments, such as stocks and bonds. When deciding where to buy your cryptocurrency, you must check that they sell the specific type of cryptocurrency you want. You also want to ensure that they are secure and have a good reputation.

Using a Cryptocurrency Exchange

Cryptocurrency exchanges are similar to stockbrokers but offer the tools necessary to buy and sell cryptocurrencies rather than shares. As with brokers, you will need to do relevant research before deciding upon a cryptocurrency exchange. You will want to look for a cryptocurrency exchange that makes it easy to buy and sell your cryptocurrency and has competitive fees.

Things you should consider when comparing cryptocurrency exchanges include the cryptocurrencies they support, prices, security, and withdrawal options.

Remember that investing in cryptocurrencies is speculative and risky. Cryptocurrency values go down and up, and you should keep a close look at the prices of your cryptocurrency should you consider selling it. If at all unsure, consult with a qualified professional.

Always be cautious when searching for a digital currency exchange. Many people are willing to scam and defraud you if you rush in without thought. Some digital currency exchanges have collapsed, and others have been hacked. For example, the US Justice Department recently seized over $3.6 billion worth of digital currency stolen during a cryptocurrency exchange hack. It arrested two suspects for allegedly trying to launder the proceeds. There were more than 20 hacks in 2021 where a digital robber stole at least $10 million in digital currencies from a cryptocurrency exchange. In comparison, bank robberies netted perpetrators an average of less than $5,000 per heist.

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Funding Your Account

Whether you use a traditional broker or a specialist cryptocurrency exchange, you will need to fund your account with them. In many cases, you will be able to use fiat currencies (i.e., standard money) to do this using your credit or debit card. However, some exchanges may require you to make a wire transfer or ACH (Automated Clearing House) transfer. In addition, some companies will let you pay using a service like PayPal.

Not all exchanges and card companies permit you to purchase cryptocurrency using a credit card. This is because of the volatility of many cryptocurrencies.  

You will probably have fees to pay when purchasing your cryptocurrency, so make sure that you transfer sufficient money into your account to pay for these. 

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Ordering Your Cryptocurrency

Once you have transferred money into your account, you will be ready to place an order. Many exchanges have an app you can easily use to do this. In addition, you can often use the same apps to sell your cryptocurrencies when you are ready.

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Blockchains

As cryptocurrencies don’t physically exist, they need a digital ledger system to keep track of ownership. Blockchains fulfill this requirement. We have previously looked at non-fungible tokens (NFTs), which also use blockchains and are a type of digital asset ownership.

Think of a blockchain as a distributed database shared amongst the computers attached to an extensive computer network. A blockchain stores information digitally and guarantees the security of the data it records, which generates trust. 

Blockchains break the information they store into groups, called blocks. Each block has a specific capacity and links to other blocks, forming what is essentially a chain of data. Any additional data needed for a particular blockchain is placed in a new block and added to the end of the relevant blockchain. 

Once you place data in a block, you can’t change it – you can only add another block to the chain. This means that you keep a record of everything that has previously happened in the earlier blocks in a blockchain, creating a timestamp when you add each block to the blockchain. 

The most common use of a blockchain is as a digital ledger to record a transaction. For example, blockchains record every transaction that occurs with a sum of cryptocurrency. The minting process creates the first blocks, and additional blocks are added every time somebody uses or trades in that unit of cryptocurrency. Because the blockchains are decentralized, no single person or group has control over them – the digital blocks exist on computers all over the world. However, the transactions are permanently recorded and viewable.

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Common Types of Cryptocurrencies

1. Bitcoin (BTC)

Bitcoin is undoubtedly the best-known type of cryptocurrency. It was created in 2009 by an unknown person, although based on ideas in a white paper credited to Satoshi Nakamoto (a pseudonym). It is now the largest cryptocurrency by capitalization.

Bitcoins exist as blocks in a blockchain, distributed across many computers. Anybody can view this data and establish ownership and history of any Bitcoin. 

Bitcoin currently has 17,003 nodes (computers) spread across the world.

Bitcoins have two “keys” – a public key, a long string of numbers and letters linked through a mathematical encryption algorithm, and a private key that you should keep secret, like a PIN.

You use a Bitcoin wallet (a physical or digital device) to help you make Bitcoin trades. Bitcoin wallets are often apps you have on your phone, and you can use them to make trades and track the ownership of Bitcoins. Despite being called a “wallet,” you don’t actually store Bitcoins in your Bitcoin wallet. Instead, you keep your Bitcoins in all the blocks across the relevant blockchain (on some combination of the 17,003 computers/nodes).

Cryptocurrencies that aren’t Bitcoin are collectively known as altcoins. You will generally go through a similar process when buying these as you would Bitcoins. Likewise, most have a version of a crypto wallet, where you can “store” your cryptocurrency keys.

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2. Ethereum (ETH)

Ethereum is a blockchain platform that uses ether (ETH) as its native cryptocurrency. As with Bitcoins, Ethereum relies on the distributed nature of blockchains to keep things secure. 

Ethereum works with various decentralized apps (dApps) that run on a blockchain. As with cryptocurrency, dApps are peer-to-peer across multiple computers and outside the control of any single authority. dApps have numerous uses, including gaming, finance, and social media. These differ from most apps that run on a single computer system, network, or servers all owned by one company. 

Another feature of Ethereum is smart contracts. These are self-executing contracts with the contract terms directly written into lines of code. Transactions relating to these contracts are traceable, transparent, and irreversible. As a result, you can have transactions and agreements between disparate, anonymous people without the need for centralized identification. 

Ethereum is the cryptocurrency with the second-highest capitalization after Bitcoins.

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3. Tether (USDT)

Tether (USDT) is another popular cryptocurrency. Its tokens are backed by an equivalent amount of $US, i.e., USDT1 = $US1. As its name indicates, the value of Tether is tethered to the value of the $US.

Cryptocurrency exchange BitFinex developed Tether. 

Tether is an example of a type of cryptocurrency called stablecoins. Stablecoins peg their values to some external (fiat) currency or sometimes a commodity like gold.

BitFinex developed Tether to reduce the wild fluctuations you see in the value of other types of cryptocurrencies. The value of Bitcoin, for instance, fluctuates wildly depending on prevailing market conditions. This volatility has made cryptocurrency riskier for many people. The development of Tether and other stablecoins has tried to reduce the wild fluctuations in value that concern many everyday investors.

Crypto investors like Tether because they can avoid the extreme volatility of many other cryptocurrencies. 

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4. Litecoin (LTC)

Litecoin dates from 2011 when former Google engineer Charlie Lee developed it. It was one of the first altcoins derived from Bitcoin’s original open-source code. Lee referred to Litecoin as being a “lite version of Bitcoin.”

It shares many features with Bitcoin but made changes where its developers thought there was a need for improvement. 

The supply of Litecoins is fixed, and there will never be more than 84 million Litecoins in circulation. The Litecoin network generates a new block every 2.5 minutes until it reaches that limit. In 2011, the first miner to verify a block received 50 Litecoins. This halved in 2015 to 25 and halved again in 2019 to 12.5 Litecoins. In 2023, it decreased to 6.25 Litecoins per block and will halve at regular intervals until the 84 millionth Litecoin is mined.

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Spending Cryptocurrency

Bitcoin was invented to be an alternative to money to pay for everyday transactions. This hasn’t really happened yet, and you will only find limited places accepting. Cryptocurrencies still aren’t considered legal tender anywhere except El Salvador, as businesses are not required to accept them. 

However, their use is growing, and an increasing number of places now accept cryptocurrency as a form of payment. Major retailers now accepting Bitcoins for certain payments include:

• Microsoft - for Xbox store credits
• Overstock – accepts multiple kinds of cryptocurrency 
• Home Depot - accepts Bitcoin payments via Flexa’s checkout systems
• Namecheap - purchase domains and hosting with Bitcoin
• Starbucks – accepts Bitcoins as part of the Bakkt app
• Coincards - buy gift cards from over 140 merchants using Bitcoin

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Crypto Debit Cards

Another option is to use a crypto debit card to make your purchases. These come preloaded with the cryptocurrency of your choice, but retailers receive fiat money as usual. These usually partner with companies like Mastercard and Visa and function like any other debit card. You can use them anywhere that accepts Mastercard or Visa.

You will want to look for a crypto debit card that charges low fees and compares it with other debit card types. Often you can make online or in-person purchases or withdraw cash from ATMs, effectively using your cryptocurrency balances. Investopedia has compared and reviewed what they believe to be the best Bitcoin debit cards (most of which accept multiple types of cryptocurrencies, not just Bitcoin).