This is How You Explain Crypto to Your Clients

Whether your clients are looking to invest, transact, or simply learn, it's crucial they have a grasp of the basics—brought to you here using language and concepts they will quickly understand.

Please note that VanEck has exposure to Bitcoin.

From the gold standard to paper money and now to digital assets, the means by which we transact and invest is constantly changing. Among the latest additions to the financial landscape are cryptocurrencies. While they may have seemed like a futuristic idea just a few years ago, cryptocurrencies are quickly becoming a mainstay in the world of investing. For many, they represent a fresh and potentially lucrative opportunity. However, with new opportunities come new questions and challenges. Where does one start? What are the basics? As a financial advisor, this is your guide to help your clients answer these questions and navigate uncharted waters, providing them with the necessary knowledge and resources.

What is Blockchain?

Imagine a book. Every page of this book records a list of transactions, like a ledger. Now, imagine that thousands of people have this exact book and are always updating it simultaneously. Whenever someone wants to add a new page (or block of transactions), everyone with a copy of the book has to agree that the new page is correct. Once they agree, this new page is added to the book, and everyone updates their copies. This entire book is called a .

The power of blockchain lies in its transparency and security. Because so many people have copies and they always verify new pages together, it's incredibly difficult for someone to cheat or make false entries.

What are Cryptocurrencies?

are like digital gold coins. However, instead of being made of metal, they exist on the blockchain. Blockchain ensures the integrity and transparency of cryptocurrency transactions. Every time someone sends or receives a cryptocurrency, that transaction is recorded on a block. Once enough transactions are recorded on a block, it's added to a chain of previous blocks—hence the term "blockchain." The decentralization of this ledger—meaning it's simultaneously maintained by numerous participants globally—ensures its security. If someone tries to alter transaction data on one block, it would conflict with the information held by others, causing the alteration to be rejected. This feature is what allows cryptocurrencies to operate without a central authority and makes them resistant to fraud.

Bitcoin: The Pioneer

, the first and most well-known cryptocurrency, operates on its own blockchain. People can send or receive Bitcoins (much like money) to make purchases or as an investment.

Bitcoin, introduced in 2009, was the first cryptocurrency and remains the most widely recognized. Think of it as the "gold standard" of crypto. Many investors view it as a store of value, like gold or silver, but in a digital form. Its decentralized nature – meaning it's not controlled by any government or central bank – has made it especially attractive to a broad audience.

Ethereum and Smart Contracts

While Bitcoin introduced the world to blockchain and cryptocurrencies, .

Let’s think of a traditional contract, like an agreement to buy a car. Usually, you'd involve third parties like banks or lawyers to ensure everyone keeps their promises. Now, imagine a digital contract that automatically does what it's supposed to when certain conditions are met, without needing a middleman. That's a smart contract!

Ethereum is a platform that allows these smart contracts to operate. It has its own cryptocurrency called Ether, which powers these contracts and ensures they run smoothly.

Applications of Cryptocurrencies and Blockchain Technology in Everyday Life

The world of cryptocurrencies can seem complex, but at its core, it’s about using technology to enhance trust and simplify transactions. With these expanded use cases, the potential and versatility of blockchain and cryptocurrencies become more evident. They're not just tech buzzwords; they're tools with the potential to revolutionize industries and daily life.

The concept of blockchain as a shared digital ledger has opened up a plethora of opportunities:

• Supply Chain Management: Companies can track products from their origin to the store shelves. This transparency ensures the authenticity of products and reduces the chances of fraud.
• Voting Systems: Elections can be conducted on blockchains to prevent vote tampering, ensuring transparency and integrity in the voting process.
• Health Records: Patients' health data can be securely stored on blockchains, giving medical professionals quick access when needed and ensuring data privacy.
• Real Estate: Property deeds and ownership transfers can be recorded on a blockchain, making processes more efficient and reducing fraud.

The advantage of blockchain is its decentralized nature. When information is stored across multiple nodes, it becomes tamper-resistant. Any malicious activity or inconsistency can be quickly detected and corrected. Ethereum expands the scope of blockchain through its smart contracts:

• Decentralized Apps (DApps): Developers can build applications on Ethereum that inherit the security and decentralized features of its blockchain.
• Decentralized Autonomous Organizations (DAOs): These are like digital companies or organizations where decisions are made based on predefined rules in smart contracts, without centralized control.
• Digital Identity: Individuals can have a digital identity on the Ethereum blockchain, ensuring personal data is secure and giving control back to the user.
• Licensing and Royalties: Artists and creators can use Ethereum to ensure they get paid their dues every time their work is used or sold.

Bitcoin's decentralized nature has made it attractive for several use cases:

• Store of Value: Many view Bitcoin as digital gold, holding onto it in hopes its value increases over time.
• Decentralized Finance (DeFi): Bitcoin can be used in lending platforms, interest-bearing accounts, and other financial services without the need for traditional banks.
• Peer-to-peer Transactions: People can transact directly without the need for intermediaries, leading to quicker and sometimes cheaper transactions.

How Can Someone Invest in Bitcoin?

For investors keen on joining the Bitcoin wave, several pathways exist. Investors can directly purchase Bitcoin through cryptocurrency exchanges using fiat money, keeping their digital assets in . Those wary of direct ownership might opt for Bitcoin futures, trading on traditional futures exchanges, to gain exposure to the cryptocurrency's price movements.

As Bitcoin adoption has grown, so has investor demand for access via a more traditional wrapper, such as an ETF. While a spot Bitcoin ETF is not available in the U.S., investors can access Bitcoin futures through ETFs like the .

Investors interested in Bitcoin can also consider investing in digital asset companies that support the cryptocurrency ecosystem. Digital asset companies are distinctly different than digital assets themselves. The publicly-traded opportunity set of companies operating within the digital asset segment has grown considerably in recent years, boosted by widespread adoption of digital assets across an array of use cases. The  offers exposure to the largest and most liquid companies in the digital assets segment.

Bitcoin Education Resources

VanEck is continuing to play a role in educating investors about Bitcoin and how to participate in the Bitcoin investment story. For more resources, visit our  and catch up on the latest  from our investment team.

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