Aug
18
2022
cryptocurrencies

What Are Digital Assets in the Crypto World?

By | Growing Wealth, invest, Investing | Comments Off on What Are Digital Assets in the Crypto World?

The meaning of digital assets has morphed over time from commonly known digital items (e.g. data, images, video, audio files, etc.) to a broader definition that includes entities that can be created and/or stored using blockchain technology, are verifiably unique, and can be used to generate value.

Digital assets now include different cryptocurrencies, non-fungible tokens (NFTs), crypto assets such as utility or security tokens, and more. While trading crypto is one of the most common ways to invest in digital assets, there are many options to choose from.

What Is a Digital Asset?

Putting aside IRL forms of digital assets that can be created and stored on devices (e.g. text, images, video, audio), the real innovation in digital assetry began with the birth of blockchain technology.

Blockchain technology is a decentralized, transparent, append-only digital ledger that can be used to track or record almost any type of asset, from goods and services to patents, smart contracts, decentralized apps (dApps), and more.

Blockchain technology relies on cryptography and a system of peer-to-peer verification, or consensus mechanisms, to secure transactions and, in the case of cryptocurrency, to mine coins and tokens.

Although most people think cryptocurrency is synonymous with blockchain technology, in fact blockchain technology is increasingly common for a range of digital products and functions — especially the creation and storage of digital assets.

Types of Digital Assets

Broadly speaking, most digital assets fall into two general categories:

1.    Cryptocurrencies

2.    Cryptographic tokens

Cryptocurrencies

There are thousands of different types of cryptocurrency beyond Bitcoin (these are often referred to as altcoins). As of August 12, 2022, some of the top crypto include:

•   Ethereum (ETH)

•   Binance Coin (BNB)

•   Ripple (XRP)

•   Tether (USDT)

•   Polkadot (DOT)

•   Litecoin (LTC)

In general, though, crypto digital assets are decentralized forms of currency; they exist on a blockchain platform, and are secured by either a proof-of-work (PoW) consensus mechanism (which involves mining), or a proof-of-stake system (PoS), where users lock up or stake some of their coins in order to become validators.

Of the many types of crypto, the vast majority have emerged from new projects. But some are hard forks from existing blockchains (e.g. Litecoin launched in 2011 after a hard fork from Bitcoin).

Others are stablecoins, meaning they’re pegged to a fiat currency like the dollar, euro, or yen, and aim to keep a 1:1 value with that currency.

💡 Interested in crypto? Learn the basics with our Crypto 101 Guide.

Cryptographic Tokens

Tokens are digital assets that can serve a variety of purposes on a blockchain platform. One of the most common types of tokens is known as a utility token, which is a token that serves a specific function within a blockchain ecosystem.

For example, as blockchain technology has advanced and the DeFi space (decentralized finance) has grown, users typically need utility tokens native to each platform to execute certain functions on that platform.

One common example is how ERC20 tokens are used on the Ethereum platform to pay for goods and services (e.g. dapps and smart contracts).

Another example of a utility token would be the Basic Attention Token (BAT). BAT is the native token of the Brave web browser, which is built on Ethereum and seeks to protect users’ privacy with a new advertising model.

There are even digital assets for social networks that reward users in the form of crypto when they create and curate quality content, like Steemit does with the STEEM token.

Digital Assets in Marketing

These days, with so many types of digital and blockchain-based digital assets, many organizations have come to rely on Digital Asset Managers (DAMs).

DAM cloud software plays a vital role for businesses that need a way to catalog and store all the various forms of data and media relevant to that company, including images, video and audio files, social media, as well as cutting-edge material like VR and AR.

In particular, marketers make use of DAM software in order to manage the brand’s entire library of digital assets, to streamline online and offline channels.

Digital Assets in Investing

Perhaps the most important aspect of digital assets for investors is that each one is unique and stored on a blockchain, therefore they provide a form of real world value that can rise and fall like any other asset (e.g. stocks, bonds, mutual funds).

Digital assets present a range of new opportunities for investors. Not only can you buy and sell the many forms of crypto, you can trade NFTs, stake tokens, and more.

Legacy markets have certain limitations that crypto markets in general and digital assets in particular may help solve, especially in regard to cross-border transfers, minimum capital requirements, and the availability of certain asset classes. Because digital assets are decentralized, meaning they are created and stored without the need for middlemen, there are new possibilities for all market participants.

Virtual Assets vs Digital Assets

Virtual assets predate digital assets, in the sense that the acquisition and trading of virtual assets has been core to the online gaming industry for years. It’s important to note however that virtual gaming assets could not be traded in a liquid market initially, whereas the digital asset market allowed for limited liquidity trading.

History of Blockchain Digital Assets

The Bitcoin white paper, also known as the Satoshi Nakamoto white paper, was published on October 31, 2008. About two months later, on January 3, 2009, the Bitcoin network went live, the first Bitcoin was created, and a new asset class (cryptocurrency) was born thanks to the emergence of blockchain, a peer-to-peer, decentralized technology that would soon change the world.

While the pioneering Bitcoin protocol helped establish the market for crypto digital assets, it wasn’t long before developers and entrepreneurs seized on the potential of blockchain technology to innovate in the DeFi space.

In 2015, the Ethereum network launched (following a 2013 white paper). From the start, Ethereum was meant to build on Bitcoin’s foundation. It was built as more than a form of crypto, but rather a programmable blockchain platform with the capacity to support smart contracts, dapps (decentralized apps), and other DeFi projects.

Ethereum and other like-minded projects that emerged around the same time revolutionized how blockchain was used and how digital assets were formed.

Pros and Cons of Investing in Digital Assets

How should investors consider the various opportunities in the digital asset space? Here are some advantages and disadvantages.

Pros

Individual Sovereignty

Bitcoin allows people to become their own bank. When storing assets at a traditional bank or other financial institution, an individual becomes vulnerable to the risk of that institution going bankrupt or mismanaging their funds. This risk is known as counterparty risk.

Because digital assets and crypto are mainly decentralized, they can eliminate counterparty risk.

By holding their own private keys in a crypto wallet, investors can have total ownership of their digital assets and cryptocurrency. Other than gold or silver, no other asset has this quality.

Diversification

Bitcoin has been the best performing asset class of the last decade by far. During eight of those years, the returns from holding Bitcoin exceeded that of any other asset in the world. (That said, as with any investment past performance is not an indication of future performance.)

Cryptocurrency can diversify an investment portfolio in a way no other asset class can. Crypto is known as a “non-correlated asset,” meaning it tends to have little or no correlation to other traditional securities (although this has changed at times and is no guarantee of future performance).

Inflation Hedge

While all investing carries risk, investors often fail to factor in the one risk inherent in every investment denominated in fiat currency (stocks, bonds, mutual funds, ETFs, etc.): Inflation risk.

The law of supply and demand dictates that when the supply of something increases, its price will decrease absent an equal or greater increase in demand. With central banks creating tens of trillions of new currency units in recent years, some investors have begun looking toward digital assets and cryptocurrencies that have fixed supply limits, like Bitcoin.

It should be noted that the only cryptocurrencies that can serve as viable inflation hedges are those that have a fixed supply. Like gold, scarce commodities tend to increase in value during times of inflation.

In addition, global uncertainty and turmoil tend to increase demand for safe haven assets.

Cons

Digital assets can be extremely volatile, whether you’re talking about the ups and downs of cryptocurrencies or the value of NFTs.

In addition, while digital assets can be considered secure because they are created and stored using decentralized technology and peer-to-peer verification systems, the reality is that when blockchain networks are hacked, those digital assets are at risk. Also, many scams are built around fake digital assets.

The market for digital assets is largely unregulated. Investors have to proceed with caution, verifying procedures, and networks, in order to avoid losses.

Digital Assets and Risk

As noted above, the vast majority of altcoins are highly speculative in nature. Most have small market capitalizations of less than $1 billion or even less than $100 million, so their prices can swing dramatically in short periods of time due to a lack of liquidity. And in the long run, it’s not unheard of for altcoins to drop to zero, meaning investors lose everything.

Bitcoin might be a little different because it has the most secure network (due to having the highest hashrate), the longest track record, and the largest market cap by far. Still past performance is no guarantee of future results, so it’s important for crypto investors to understand the risks inherent in investing in digital assets.

Best Practices for Investing in Digital Assets and Cryptocurrency

Anyone considering investing in digital assets and cryptocurrency would do well to educate themselves on related subjects.

The more a potential investor familiarizes themselves with crypto terms like bitcoin halving, bitcoin forks, and how crypto exchanges work, the less confusing this type of investment will seem.

Due to the volatile nature of digital assets and cryptocurrency, one possible investing strategy is dollar-cost averaging. Rather than trying to time the markets, investors can buy fixed dollar amounts at certain intervals. An example would be an investor setting a recurring buy for an automatic purchase of $50 worth of crypto every two weeks.

The Takeaway

Digital assets is a broad term. It has morphed over time from more tangible digital items like text and images to a definition that includes entities that are created using blockchain technology. Unlike tangible digital assets, today’s digital assets generate real-world value and are an asset class unto themselves.

Digital assets not only include cryptocurrencies and non-fungible tokens (NFTs), but also crypto assets such as utility or security tokens, and more. Trading these assets comes with certain risk factors, but considering how new this area is, there are also many opportunities for investors.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Aug
15
2022
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Average Stockbroker Commission Percentage

By | Growing Wealth, invest, Investing | Comments Off on Average Stockbroker Commission Percentage

Investing in the stock market is usually alluring for those trying to grow their money. But there are many things to consider before jumping in — chief among them stockbroker commissions. Stockbrokers often charge commissions and other fees for the use of their services, and these brokerage fees can vary widely.

Investors must pay attention to average brokerage fees when making investment decisions; finding the right broker can play a significant role in long-term financial outcomes. Before delving into how much stockbrokers typically charge for their services, it’s worth understanding their role in an individual’s investment strategy.

What Does a Stockbroker Do?

A stockbroker, or investment broker, is an individual or firm that charges a fee or commission to buy or sell stocks and other securities on behalf of their clients. Using a stockbroker is relatively common for people looking to invest in the market.

Buying stocks isn’t like making other purchases because the channels through which stocks are bought and sold are fairly controlled. While an individual buying a computer could choose to purchase directly from a manufacturer, a store, or a friend, the channels for buying stocks are much more limited. Generally, purchases of stock are required to flow through a stockbroker.

However, there are some instances when someone may buy stocks without a broker, including buying and selling through direct stock and dividend reinvestment plans.

A stockbroker has a license that allows them to trade registered securities, meaning the ability to buy and sell stocks on behalf of clients. But merely acting as an agent for buying and selling stocks doesn’t capture the full extent of what some brokers do. Many brokers offer additional services to clients, like money management and estate planning.

Because the types of services a stockbroker may offer, and the fees they levy on these services, can vary, it’s good to understand the main categories of brokers. In addition to selling shares of companies, a stockbroker may also sell other traded securities such as mutual funds and exchange-traded funds.

What Is the Average Stock Broker Commission Fee?

The amount charged by a brokerage firm for its services can vary greatly. Some firms may charge a flat fee for their services, while others may charge a percentage of the overall value of the transaction. The average fee charged by brokerage firms is typically between 1% and 2% of the total transaction value.

Full-Service vs Discount Stockbrokers

The main two categories of stockbrokers are full-service brokers and discount brokers. You want to understand the differences before opening a brokerage account.

As they sound, a full-service brokerage firm provides more hands-on service, helping clients balance their portfolios and providing other investment advice. Discount brokers allow an investor to buy and sell stock and other assets, but provide few add-ons but still. Commission rates and additional fees vary accordingly.

Because full-service stockbrokers provide an array of services over the year, they typically base their commissions on a more all-inclusive model determined by the value of the investments they manage. While there may also be additional fees, the typical commission structure for a full-service broker is known as the percentage of assets under management. The cost is charged annually and is listed within fee schedules as “x%/AUM” (assets under management).

Discount brokers, synonymous with online brokerage accounts, on the other hand, typically charge a per-transaction flat stock trade fee, regardless of the type of stock or number of shares being bought or sold.

For example, if the stock trade fee is $5 per trade, that’s what an individual would pay whether they were buying five shares of a stock valued at $50 a share ($250) or 500 shares ($25,000).

However, many discount brokers these days charge no commission for trading stocks.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, auto investing, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Common Brokerage Fees

Various investment fees and costs are associated with the buying and selling of investments. Investors should consider these brokerage fees when choosing a broker and deciding what investments to make.

Management Fees

An investment’s management fee is the fee the investment manager charges for its services. This fee is typically a percentage of the investment’s assets under management and is deducted from the investment’s returns.

If you use a full-service brokerage that offers money management services, they will often charge a management fee. Some charge as much as 2% and others far less.

Generally speaking, the more money you have invested with a broker or money manager, the lower your management fee will be.

Commission For Trading

Many brokerage firms charge a commission for making trades on behalf of clients. Fees and commissions vary widely depending on the type of transaction and broker. Those fees can be based on a percentage of the transaction’s value — usually between 1% to 2% — or they can be a flat fee.

The commissions for trading depend on whether an investor uses a full-service or discount broker. Because full-service brokers offer a wide range of advice and services, their commissions per trade may be higher than a discount or online brokerage might charge.

Discount brokers offer fewer advice and services, so they can charge a lower flat fee per trade, from less than $5 to more than $30. In recent years, the biggest online brokerage firms have offered no commission trading, partly due to competition and because they instead get paid through a practice known as payment for order flow.

Retirement Account Fees: 401(k)

If you have a 401(k) savings account through your employer, there are several fees to keep in mind when making your investments.

First, you’ll likely be charged an administration fee to maintain the plan. These fees can range from 0.5% to 2% of your 401(k) balance. The 401(k) provider charges this fee to your employer, and the cost is usually passed down to the employees.

Additionally, the actual investments in your 401(k), like mutual funds and ETFs, charge management fees that you’ll have to pay.

Mutual Fund Fees

Investors interested in buying and selling mutual funds must consider the fees associated with these investment vehicles.

Expense Ratio

The expense ratio is the yearly cost that mutual funds and ETFs charge investors to cover operating costs. The expense ratio measures the total costs as a percentage of the fund’s total assets. The fund’s costs may include management, custodial, marketing, and other expenses.

The average expense ratio for an actively managed mutual fund ranges from 0.5% to 1.0%, while passive funds have an average expense ratio of 0.2%.

The costs of operating the mutual fund are deducted from your investment, reducing your returns each year.

Sales Load

Mutual fund investors may pay sales loads — also known as sales charges — when they buy or sell shares of the fund. The sales load is how the broker or advisor gets paid for their service.

A sales load isn’t a flat transaction fee, however. Instead, it’s a percentage of the assets invested.

FINRA caps mutual fund sales loads at 8.5%, though the common range is between 3% and 6%.

Brokerage Fee Impact on Investments Long-Term

Brokerage and investment fees and commissions can eat away at long-term gains. Thus, finding the right broker and investing in low-cost funds can help you achieve your long-term financial goals.

To illustrate, if full-service brokerage charges a 1.5% annual management fee on a $50,000 portfolio, that costs $750 for the investor during a single year. While that charge doesn’t seem significant for one year, those fees will add up and eat into overall returns over time.

Brokerage Fee Pros

One of the benefits of using a brokerage is that you have access to valuable resources, research, and advice. These services may help you make better investment decisions, leading to better financial outcomes. So, you may get what you pay for, even if you think the fees may be steep.

Brokerage Fee Cons

As noted above, brokerage fees can be expensive and eat into investment returns. This is especially a problem if you don’t do your homework and pay attention to all the fees charged by brokers and the kind of investments you make.

Additionally, high brokerage fees may discourage some people from investing, leading to poor long-term financial outcomes.

Is It Worth Using a Stockbroker?

Using a stockbroker, especially a full-service brokerage, can be ideal for investors intimidated by complicated financial markets. The idea of having a licensed professional guide novice investors through every investment decision and trade might seem like a good way to get more comfortable with the principles of investing. But as the above examples illustrate, the average full-service stockbroker commission can make the full-service approach expensive.

Free Trades and Chat With a Planner

With long-term returns that have historically outpaced interest rates on savings, investing in the stock market can be a powerful strategy for financial growth. Even beginners may find investing less intimidating than they thought — and possibly see clear of high stockbroker fees.

With a SoFi Invest® online brokerage account, you can start trading stocks and ETFs with no commissions for as little as $5. If you sign up for a SoFi account, you’ll even get complimentary access to financial planners, SoFi’s non-commissioned fiduciaries who are required to keep your best interests in mind.

Learn some of the advantages of investing with SoFi Invest

FAQ

How do stock brokerage fees work?

Stock brokerage fees are typically a commission that a broker charges for executing trades on behalf of their clients. These fees can vary depending on the type of trade being executed, as well as the broker’s commission structure.

Are there any alternatives to a brokerage fee?

A brokerage fee is a charge assessed by a broker for their services, which typically include advice, transaction execution, and asset management. There are a variety of alternatives to brokerage fees, including flat fees, subscription fees, and performance-based fees.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Aug
15
2022
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What Is Stagflation & Will It Happen Again?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is Stagflation & Will It Happen Again?

The economic term stagflation is a mashup of the words stagnation and inflation — and it’s worth being aware of because of the threat it poses to economies.

Stagflation creates potentially disastrous conditions where people experiencing a decline in purchasing power also feel discouraged against investing. It can create a chain reaction of wealth-destroying events where unemployment climbs and economic output slows, contributing to a national economic malaise.

What Is Stagflation?

Stagflation is a term used to describe a situation when the economy is growing slowly — stagnation — and prices rise rapidly — inflation.

The term was coined by British Conservative Party politician Iain Norman Macleod in a 1965 speech to Parliament. At the time, the United Kingdom was in the midst of simultaneous high inflation and unemployment. In the speech to Parliament, Macleod said, “We now have the worst of both worlds – not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of ‘stagflation’ situation and history in modern terms is indeed being made.”

Usually, economists and analysts will use the unemployment rate as a proxy for economic activity when discussing stagflation. So, a period of stagflation is when unemployment rises while inflation — as measured by the consumer price index (CPI) — accelerates above normally acceptable levels of price growth.

However, like many economic concepts, there is no standard definition of stagflation. Policymakers, elected officials, and investors will use the term stagflation in various economic scenarios.

💡 Recommended: Understanding the Different Economic Indicators

Stagflation vs Inflation

Inflation is a general increase in the average prices of goods and services. In contrast, stagflation is a combination of stagnant economic growth and rising inflation.

Low levels of inflation are normal for an economy; there’s a reason why movie theater tickets cost more today than they did in the 1950s. Inflation doesn’t become an issue until prices get out of control and spiral upwards. Policymakers within the Federal Reserve like inflation to rise about 2% each year.

You can have inflation without stagflation, but you can’t have stagflation without inflation.

Has Stagflation Ever Happened?

Before the 1970s, economists didn’t think stagflation — a period of rising unemployment and inflation — was possible. Theoretically, inflation should decrease when unemployment increases because workers have less bargaining power to get higher wages. So, the theory goes, stagflation shouldn’t happen.

However, stagflation did occur in the United States from the mid-1970s. During the 1973-1975 recession, the U.S. experienced five quarters where the gross domestic product (GDP) decreased. Inflation peaked at 12.2% in November 1974, and the unemployment rate rose to 9.0% in May 1975.

This stagflation cycle was part of a larger sequence of events called the Nixon Shock.

Responding to increasing inflation in 1971, President Richard Nixon imposed wage and price controls and surcharges on imports. This created a perfect-storm condition where, when the 1973 oil crisis hit, those surcharges on imports made prices at the gas pump — and across many U.S. industries — skyrocket to then-record prices. The rising prices helped lead to a wage-price spiral, where inflation led to workers asking for higher wages, which led to more inflation, and so on.

The Federal Reserve raised interest rates to combat the inflation of the early-70s, but this only created a recession and high unemployment without tamping down inflation. Thus, a prolonged economic stagnation accompanying inflation occurred — a stagflation situation.

While the economy recovered slightly in the late 1970s, inflation remained a problem for the rest of the decade. Federal Reserve chairman Paul Volcker eventually hiked interest rates to 20% by 1981, triggering a recession to get inflation under control.

💡Recommended: Here are some of the top ways to hedge against inflation.

Will Stagflation Happen Again?

There are debates about whether stagflation will occur again in the United States.

The economy was in a precarious situation in the first half of 2022. Inflation was running hot due to supply chain issues related to the economic fallout of Covid-19, as well as fiscal and monetary policy stimulus. The Federal Reserve started raising interest rates at a historic pace to combat the rising prices. The Fed began an attempt to curb inflation with the hope of a soft landing, in which an economy slows enough that prices stop rising quickly but not so slowly that it sparks a recession.

Like the 1970s, an energy and commodity crisis occurred due to Russia’s invasion of Ukraine; most of the world subsequently placed economic sanctions on Russia. The sanctions led to high oil, gas, and food prices, adding to already hot inflation.

These factors made the chance of stagflation more of a reality. Economic growth, as measured by GDP, declined in the first half of 2022. Inflation was at its highest rate in over 40 years, coming in at a 8.5% annualized rate in July 2022. Because of this, some economists and analysts believe that the economy entered a period of stagflation.

However, other commentators note that the unemployment rate was 3.5% as of July 2022, the lowest in 50 years. Because of this, these commentators claim that there can’t be stagflation.

While no one can predict the future, it stands to reason that events that have happened in the past can happen again. Stagflation may occur again, but this doesn’t have to be a dire situation as long as you prepare your financial situation.

💡 Recommended: SoFi’s Recession Guide and Help Center

How Can Stagflation Impact Investors?

Economic stagnation can have several impacts on investors. Firstly, it can lead to lower returns on investment as companies are less likely to grow and expand in a stagnant economy. This can lead to investors becoming more risk-averse as they seek out investments that are more likely to provide stability and income.

Secondly, stagnation can also lead to higher levels of unemployment, which can, in turn, lead to social unrest and political instability. This can make it more difficult for companies to operate in a given country and lead to investors losing confidence in the economy.

A slowdown of economic activity lasting several months sounds like it can only be a bad thing. But a recession does not necessarily mean the death knell for your finances. For some investors, there are, perhaps surprisingly, compelling strategies to consider when the market is down. Volatility may allow investors to buy low and then make appreciable gains as the market corrects itself.

💡 Recommended: How to Invest During Inflation

The Takeaway

Stagflation occurs when an economy experiences simultaneous high inflation and high unemployment. It’s a situation that often leads to decreased spending by consumers and businesses, which can further stall economic growth and investment returns. Stagflation has occurred before in the U.S. — notably during the Nixon Shock of the early 1970s — and there is no reason to think it won’t happen again at some point.

A SoFi Invest® online brokerage account offers members a wide range of investment help and opportunities — from automated investing to a more hands — on approach with active investing. Our platform provides the latest market news, and information investors want about stocks and other investment options, which can help you make decisions even when the economy is on shaky ground.

Find out how to start investing with SoFi Invest.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Aug
15
2022
What Is ETH Gas? How ETH Gas Fees Work

What Is ETH Gas? Ethereum Gas, Explained

By | Growing Wealth, invest, Investing | Comments Off on What Is ETH Gas? Ethereum Gas, Explained

On the Ethereum platform, “gas” is a unit describing the amount of computational power needed to execute specific operations on the network. Because every Ethereum transaction consumes computational resources, transactions come with a cost. Gas is the fee needed to conduct an Ethereum transaction.

So in essence, an eth gas fee is a transaction fee on the Ethereum platform. Gas is denominated in units called gwei.

What Are Ethereum Gas Fees?

To prevent users from spamming the network with endless transactions, every cryptocurrency requires a small fee to send coins along its blockchain. These fees are typically paid to miners who validate transactions, but the fees also can give users the incentive to mine crypto.

Sending ETH from one Ethereum wallet to another also requires fees. Moreover, the Ethereum network charges fees to run applications on using its blockchain technology, giving an ETH transaction fee an added type of utility. Because ETH fees provide the energy, or power, to run applications on Ethereum, these fees are also called “gas.”

Ethereum fees can only be paid in ether (ETH), or ERC-20 tokens, the native currency of Ethereum. ETH gas prices are denominated in a unit known as “gwei.” And one gwei equals 0.000000001 ETH.

💡 Recommended: How to Buy Ethereum (ETH)

How Ethereum Gas Works

Ethereum underwent an upgrade in August 2021 known as the London Upgrade, which altered the way that ETH gas fees are calculated.

Pre London Upgrade

Before the London Upgrade, ETH gas worked like this:

•   Assume Alice wants to pay Bob 1 ETH. The gas limit is 21,000 units, while the gas price is 200 gwei.

•   The total fee is calculated as: (gas units (limit) x gas price per unit). In this example, that would equal: 21,000 x 200 = 4,200,000 gwei, or 0.0042 ETH.

•   When Alice sends the ETH, 1.0042 ETH comes from her Ethereum wallet. Bob receives 1.0000 ETH. An Ethereum miner receives 0.0042 ETH.

Post London Upgrade

The London Upgrade was introduced in an effort to make Ethereum’s fees more predictable for users. It also introduced a burn mechanism into Ethereum, to offset issuance of new ETH (there is no limit to how much ETH can be minted).

As of this upgrade, each block has a base fee, which is calculated by the network based on current demand for block space. This base fee gets burned (destroyed), so users are now expected to include a tip or priority fee with each ETH transaction — the greater the tip, the hope is, the more the transaction will gain priority.

This tip provides compensation to miners; many expect that most crypto wallets will integrate a feature that sets the tip fee automatically.

After the London Upgrade, gas works like this:

•   Assume Alice wants to send Bob 1 ETH. The gas limit is 21,000 units, the base fee is 100 gwei, and Alice includes a tip of 10 gwei.

•   The new formula is: gas units (limit) x (base fee + tip). This can be calculated as 21,000 x (100 + 10) = 2,310,000 gwei, or 0.00231 ETH.

•   When Alice sends the ETH, 1.00231 ETH will be subtracted from her wallet. Bob will receive 1.0000 ETH. A miner will receive the tip of 0.00021 ETH. And 0.0021 ETH will be burned.

Alice also has the ability to set a maximum fee for the transaction. The difference between the max fee and actual fee will be refunded. This allows users to set a maximum amount to pay for transactions without having to worry about overpaying.

This makes things more predictable, as under the old transaction fee model, fees could wind up being higher than anticipated during times of extreme network congestion.

💡 Recommended: Is Crypto Mining Still Profitable in 2022?

Average ETH Gas Prices

According to ycharts.com, the average Ethereum Gas price is about 32.79 gwei, as of August 10, 2022. Over the course of the past 12 months, this price has gone as high as 474.57 gwei and as low as 12.28 gwei.

What this means in dollars: Between Jan. 2021 and May 2022, Ethereum’s average daily gas fee was about $40, reaching the highest daily average in May 2022: about $196.63.

As of August 10, 2022, Ethereum average gas fees are about $1.60.

How Will Gas Fees Change in Ethereum 2.0?

The Ethereum project has been working on a massive transition from a proof-of-work (PoW) consensus mechanism, which involves mining, to the more energy-efficient proof-of-stake (PoS) verification model.

By some reports, Ethereum developers have embarked on a test of the PoS blockchain, but the final transition to the new blockchain may not occur until the fall of 2022.

The update has been called Ethereum 2.0, Serenity, or Eth2, but now has been dubbed “the merge.” The plan is to eliminate the PoW mining protocol in favor of a more climate friendly PoS, which promises to reduce certain strains on the network and increase capacity, but it’s unlikely that the cost of gas will go down.

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How Do Ethereum Gas Fees Relate to Transactions?

The way Ethereum gas fees relate to transactions is pretty simple: Each transaction requires a fee to be paid to miners as an incentive for processing the transaction. The general concept is not unlike that of other cryptocurrencies.

The only difference with ETH gas is that because the Ethereum Virtual Machine (EVM) is also a state machine, additional fees are required for more complex transactions, such as those involving smart contracts.

What Is the Ethereum Gas Limit?

The standard limit on an Ethereum gas fee is 21,000 units. The ether gas limit refers to the maximum amount of gas a user can consume to conduct a transaction.

Transactions involving smart contracts are more complicated, and require more computational power to execute. So these transactions need a higher gas limit than simpler transactions like sending payments.

Setting a gas limit too high is fine — the EVM will refund what doesn’t get used. But setting a gas limit too low could result in a user losing some ETH and having their transaction declined.

If a user were to place an Ether gas limit of 50,000 for an ETH transfer, for example, the EVM would consume 21,000 and refund the remaining 29,000. But if someone were to set a gas limit of 20,000, and the transaction were to require 21,000 units, the EVM could consume 20,000 gas units as it tries to fulfill the transaction, but the transaction won’t complete.

In this case, the user would hold on to the ETH they tried to send, but their 20,000 gas units would be lost because the EVM consumed it trying to complete the failed transaction.

What Is the Benefit of a Gas Fee?

The benefit of an ETH gas fee post London Upgrade is that users can better anticipate what their total transaction cost will be. They can also send higher tips to miners to prioritize their transactions. This can be useful when someone wants to send money right away and doesn’t want to wait too long for the transaction to confirm.

Another benefit of an adequate ETH gas fee is that it ensures a transaction will be accepted by the network. A too-low fee can result in a transaction being rejected, in which case a user could lose the gas they spent and not have their transaction go through.

Reducing ETH Gas Costs

Developers hoped that the London Upgrade might reduce gas costs, but so far the data doesn’t support this.

Individual users have little to no control over their own gas costs, as the fee is determined by the current state of the network. Because block space is limited, the more transactions that are taking place at any given time, the more competition there will be for transactions in each block. This results in higher fees as users compete to have their transactions be confirmed, bidding gas prices upward.

That said, there are some ways individuals can try to reduce gas fees.

•   Stick to weekend transactions: Typically, gas prices are higher during weekdays and lower on weekends.

•   Initiate transactions at off times: Those who follow gas prices carefully have noticed that the least busy time is between midnight and 4:00 a.m. Eastern Standard Time (EST).

The Takeaway

Depending on the purpose of the transaction, ETH gas can be used toward smart contract functionality or simply for sending ETH or ERC-20 tokens over the Ethereum network. Gas fees vary according to how much activity is on the network at any given time, and thanks to the London Upgrade, users can add more generous tips to help prioritize their transactions.

While the much-heralded upgrade to Ethereum’s new proof-of-stake blockchain is in the works, and promises greater efficiencies on some fronts, it’s not likely to reduce gas fees. That said, as of August 2022, the cost of gas is quite low: about $1.60.

Photo credit: iStock/finchfocus

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

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Comparing Bitcoin vs Altcoins

Bitcoin vs Altcoins: Differences and Similarities, Explored

By | Growing Wealth, invest, Investing | Comments Off on Bitcoin vs Altcoins: Differences and Similarities, Explored

Although Bitcoin (BTC) is the oldest and still the leading cryptocurrency by market capitalization, there is a whole world of crypto beyond Bitcoin. These types of cryptocurrencies are often referred to as alternatives to Bitcoin, or altcoins for short.

Most altcoins are built in the spirit of Bitcoin, which is a decentralized, blockchain-based currency. But there are different categories of altcoins that serve myriad roles and purposes, depending on the blockchain they’re based on.

Currently there are tens of thousands of altcoins on the market. Ethereum (ETH), which is second in line to Bitcoin, is the biggest altcoin by market cap. Here’s what you need to know about how cryptocurrency works when investing in Bitcoin vs. altcoins.

Bitcoin vs Altcoins

The total global cryptocurrency market has a total market capitalization of roughly $996 billion, as of July 26, 2022, according to CoinMarketCap.

Bitcoin, the leading cryptocurrency, holds about 41.7% of the crypto market share, and Ethereum, the second-largest crypto, accounts for about a 20% share of the total crypto market. The rest of the crypto market is comprised of altcoins.

While Bitcoin is larger and well established, many altcoins are smaller, have lower valuations, and may be more experimental or innovative. Given Bitcoin’s enormous increase in value over its 13-year span, some investors who are interested in buying cryptocurrency may hope to find an altcoin that could deliver the same outsize returns. But as with anything in the investing world, there are no guarantees.

As of July 2022, Bitcoin itself, along with most other crypto, has also seen a dramatic drop in value since its all-time high of about $68,000 in November of 2021.

💡 Recommended: Bitcoin’s Price History

Similarities

Given that cryptocurrencies are still a speculative asset class, both Bitcoin and altcoins are volatile.

Both Bitcoin and altcoins have similar characteristics. They are both peer-to-peer systems that can be used as a medium of exchange to purchase goods and services in digital transactions.

In order to purchase either Bitcoin or altcoins, investors need a digital wallet to buy, sell or store these assets. Both types of cryptocurrencies are decentralized, which means there is no third party needed to process transactions, nor is there a central entity to control the particular Bitcoin or altcoin network.

Differences

The chief differences between Bitcoin vs. altcoins include:

•   Longevity. Bitcoin has been around much longer than any altcoin.

•   Value: The price of BTC is historically higher than any altcoin.

•   Utility: While Bitcoin is considered a store of value, many altcoins offer different functions or capabilities compared with Bitcoin.

Bitcoin vs. Altcoins: Similarities and Differences

Similarities

 Differences
Bitcoin and most altcoins are volatile forms of crypto. Bitcoin has a 13-year track record, longer than any altcoin, which may help investors understand how Bitcoin performs in different economic environments.
Both types of crypto are based on blockchains, are considered decentralized and are run on peer-to-peer networks. While BTC is worth about $21,100, as of July 26, 2022, altcoins vary in value from thousands of dollars to less than a cent.
Bitcoin is considered a store of value, whereas altcoins may offer innovative functions and purposes.

Understanding Altcoins

Broadly speaking, altcoins are viewed as any type of crypto other than Bitcoin. Many altcoins were launched after a fork from Bitcoin (or another blockchain like Ethereum). Typically, altcoins are designed to address specific issues like transaction speeds or security factors, or to facilitate other functions on a specific blockchain.

The first altcoin was Litecoin, which was a fork of the Bitcoin blockchain that launched in 2011. Because there weren’t many Bitcoin competitors at that time, the term “altcoin” came into being to describe the new arrivals.

In addition to Ethereum, which is the second-largest crypto after BTC, other altcoins in the top 10 by market cap include Binance coin (BNB) and XRP (XRP), among many others.

Stablecoins

One specific type of altcoin is known as a stablecoin, which are cryptocurrencies that are pegged to an underlying asset like the U.S. dollar. Two of the biggest stablecoins by market cap are Tether (USDT) and USD Coin (USDC).

💡 Recommended: Altcoins vs Stablecoins

Utility Tokens

Another type of altcoin is known as a utility token. These are cryptocurrencies that are used on a particular blockchain to pay for or execute particular functionalities on that platform.

Security Tokens

Security tokens are altcoins which offer digital representation of a physical asset or a digital contract that provides ownership to an asset that holds value like a stock, home, or car.

Pros and Cons of Altcoins

Pros

 Cons
Can be a high-yielding asset Not all altcoins will exist in the future
Altcoins offer ways to diversify your crypto portfolio Bitcoin provides stiff competition
Some altcoins were created to improve upon the Bitcoin model Some altcoins are unavailable to trade on crypto exchanges
There are thousands of altcoins for investors to choose from Altcoins are volatile assets

Understanding Bitcoin

Bitcoin was the first cryptocurrency to be created in 2009 by a person or group of people using the pseudonym Satoshi Nakamoto.

To understand Bitcoin’s significance and what Bitcoin is: Bitcoin was the original form of digital cash, based on a blockchain that acts like a ledger, recording all transactions on the decentralized peer-to-peer network. This means, every transaction ever made using Bitcoin can be verified. Bitcoin’s network uses encryption which allows individuals across the world to exchange and transact in Bitcoin securely and anonymously.

Since Bitcoin is decentralized, it’s not governed by a central authority, and no one entity controls it. Bitcoin is considered a scarce cryptocurrency. There can only be 21 million BTCs created. This characteristic is said to make Bitcoin’s value increase over time.

Since its inception, Bitcoin has seen an all-time high of about $68,000. Currently it’s worth $21,100, with a market cap of more than $403 billion, as of July 27, 2022, with over 19.1 million BTC in circulation.

Pros and Cons of Bitcoin

Pros

 Cons
Bitcoin has the strongest fundamentals and is easily accessible Adoption is growing but still limited
Bitcoin has a history of providing investors with outsize gains* But Bitcoin is a volatile asset, and also has a history of outsize losses

*Past performance is no guarantee of future returns.

The Takeaway

An increasing number of altcoins are hitting the crypto scene leading to new innovations in the crypto market. Bitcoin is undoubtedly the crypto leader, but as altcoins are taking more of the crypto market share it’s important to pay attention to what these crypto alternatives bring to the table.

Although many altcoins got their starts when developers created a fork of existing blockchains like Bitcoin and Ethereum, that doesn’t make altcoins replicas in any way. On the contrary, most altcoins offer important innovations or solutions to existing blockchain problems. Many serve important functions as utility tokens on a given blockchain, or security tokens in the wider market.

FAQ

Could an altcoin overtake Bitcoin?

There is always a possibility that another cryptocurrency could overtake Bitcoin but no one can predict the future. Right now, Bitcoin is the most dominant cryptocurrency on the market, but there are cryptos that have blockchain networks that operate differently and offer different applications that Bitcoin doesn’t.

Why does Bitcoin have a higher value than any altcoin?

Bitcoin dominates the crypto market; its trading volume and market cap are unmatched. It was the first of its kind, and its network is larger than any other altcoin. Bitcoin is used as the benchmark to measure how altcoins and the cryptocurrency market as a whole is performing.

Is Ethereum an altcoin?

Yes. Every crypto that is not Bitcoin is considered an altcoin. Ethereum is the second largest cryptocurrency by market capitalization right behind Bitcoin.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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