What Is Ethereum 2.0 and When Will it Be Released?

What Is Ethereum 2.0 and When Will it Be Released?

It’s hard to imagine the U.S. government announcing the “Dollar 2.0.” But in the wild world of cryptocurrencies, that wouldn’t be an unusual occurrence. When it comes to some cryptocurrencies, like Ethereum, it’s inevitable — Ethereum 2.0 is in the works.

While Ethereum has, in some respects, joined Bitcoin as a fairly mainstream cryptocurrency, it’s overdue for an upgrade. Read on to learn what those upgrades will look like, what they’ll do to your Ethereum holdings, and ultimately, what it means for your portfolio.

Recommended: Guide to Investing in Ethereum

What is Ethereum 2.0?

To understand Ethereum 2.0 and its upgrades, you must have a basic understanding of what Ethereum is. Here’s the short version: Ethereum is an online platform built on blockchain technology (essentially a decentralized ledger) that programmers use to store data on decentralized networks. It has a native currency, “ether,” which powers transactions on the platform. So, using blockchain technology, Ethereum allows developers to build decentralized applications (DApps).

Now, as for Ethereum 2.0, the upgrades will address some core issues with the Ethereum network. It’s like upgrading the software on your phone or computer, in a sense, in that the new version of Ethereum will resolve some existing issues and make it easier for Ethereum 2.0 to gain more widespread adoption.

Limitations of the Current Ethereum

Ethereum 2.0, or Ethw, aims to “make Ethereum more scalable, more secure, and more sustainable,” according to its creators .

Those goals address several of the network’s key limitations: It needs to be faster, less vulnerable to threats, and eat up fewer resources. Of course, there are challenges to put these changes in place. Programmers have spent many years working on Ethereum 2.0, and the changes will take several years to be fully adopted.

When Is the Ethereum 2.0 Release Date?

There is not a hard and fast Ethereum 2.0 launch date. The transition to Ethereum 2.0 has already begun, with the introduction of the Beacon Chain occurring in December 2020. The next phase will be “the merge,” followed by “sharding,” and then, finally, the transition to eWASM.

What Are the Upgrades to Ethereum?

The Beacon Chain

The Beacon Chain upgrade launched in December of 2020. The Beacon Chain introduces a new staking concept to the platform. It launched before many other upgrade components because it’s a cornerstone to Ethereum 2.0’s system. The Beacon Chain needed to be in place for other components to work on top of it.

The Ethereum Mainnet Merge

“The merge,” as some call it, concerns the marriage of the existing Ethereum mainnet ( Ethereum’s main network) with the Beacon Chain’s proof-of-stake protocol. The Ethereum 2.0 team working on these upgrades refers to this as “the docking.”

Developers expect “the docking” to take place sometime during 2021 or 2022. Once it happens, miners will no longer need to mine ETH, and will instead move to a staking system in order to earn additional Ethereum tokens.

These two steps — the launch of the Beacon Chain, and the mainnet merge — pave the way for the final part of the transition: The introduction of shard chains.

Shard Chains

By introducing shard chains, the Ethereum network will have more capacity and speed, giving it the ability to handle more traffic. “Sharding” is a bit technical, but it basically means that a database will split horizontally to spread the load of the transactions on the network.

Sharding reduces congestion and speeds everything up, allowing the network to store and process more data in a shorter amount of time. Plus, more people will be able to participate on the network after it is sharded.

The introduction of sharding will likely occur sometime in 2022.

Launch of eWASM

The final stage of the rollout will include the introduction of eWASM (WebAssembly) code to the renewed platform. eWASM will replace Ethereum Virtual Machine (EVM), the engine on which the platform runs now, and which powers the action on the network. The launch of eWASM should make the network faster and more efficient.

Ethereum 2.0 Staking

Recall that Ethereum 2.0 will represent a full transition to a proof-of-stake protocol from a hybrid system that uses both proof-of-stake and proof-of-work. Staking, in general, is the process of locking up cryptocurrencies to earn rewards. It’s like putting your cash in a savings account and accruing interest. Staking is a process used to validate data and transactions in a blockchain network, which is why and how Ethereum uses it.

Recommended: What is Crypto Staking?

Understanding Proof-of-Stake

With a proof-of-stake system, users validate block transactions based on the number of coins they hold. Basically, the more ether a user has, the more mining power they possess. But mining isn’t necessary under a proof-of-stake algorithm (not the case for proof-of-work).

That means that the process requires less energy and mining power—fewer resources overall—to keep the network running.

The Difference Between Proof-of-Stake and Proof-of-Work

Proof-of-work, conversely, is the original algorithm used by blockchain networks. On this protocol, users “mine” new coins, as they would with Bitcoin, to earn rewards. Mining eats up a lot of resources, which is one reason Ethereum 2.0 is moving to proof-of-stake.

Recommended: Is Crypto Mining Still Profitable in 2021?

A proof-of-stake algorithm will also bring less risk onto the network, has stronger support for sharding, and is more efficient — all upgrades over the proof-of-work system.

Status of the Ethereum 2.0 Project

It’s still early days for Ethereum 2.0. The Beacon Chain has launched, but we’re waiting for the “merge,” or “the docking,” to take place. Developers expect this to occur sometime during 2021, but it could happen during 2022.

The Ethereum 2.0 project is being released in phases, so it’ll be some time before the full transition is in effect. You can visit Ethereum’s website to check on the current status of the project.

What Will Happen to My ETH?

There is no immediate impact to ETH holders from the Ethereum 2.0 project. While the network is getting upgrades, there’s no change to ETH itself. Be suspicious of anyone who says otherwise, as scammers may try to take advantage of the transition.

Some ETH proponents have positive ethereum 2.0 price predictions. They believe that the upgrade will increase the value of ETH making your holdings worth more over time.

The Takeaway

Ethereum 2.0 is an upgrade to one of the largest and most popular cryptocurrencies. While the multi-year rollout of the upgrade has just begun, developers hope it will make the cryptocurrency bigger and safer, while reducing its environmental impact, setting it apart from other types of cryptocurrency.

If you’re interested in trading Ethereum before the Ethereum 2.0 update comes out, a great way to get started is by opening a brokerage account on the SoFi Invest online trading platform. You can use it to trade several types of cryptocurrency, as well as to purchase other investments such as stocks or exchange-traded funds.

Photo credit: iStock/Pekic


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
SOIN0721319

Read more
50 Investment Phrases, Decoded

50 Investment Terms, Decoded

Any new endeavor — from rock climbing to investing — means getting familiar with new words and phrases. Some investment terms may seem complex, but this list will take the mystery out of the most common investing terminology, so you can feel even more confident as you start your investing journey. If you want a deeper dive, SoFi’s Investing 101 Center can help you become even more fluent with investing basics.

50 Investment Terms Every Investor Needs to Know

1. Alpha

Alpha is used to gauge the success of an investment strategy, portfolio, portfolio manager, or trader compared with a relevant benchmark. You may also hear alpha defined as “excess return” in that it refers to returns that can be attributed to active management, over and above market returns.

2. Assets

An asset is anything that holds value that can be converted to cash. Personal assets might include your home, a car, other valuables. Business assets might include machinery, patents. When it comes to investing, assets are typically the securities you invest in.

3. Asset Class

An asset class is a group of investments with similar characteristics that is likely to perform differently in the market than another asset class. Types of asset classes include stocks, bonds, real estate, currencies, and more. Given the same market conditions, stocks and bonds often move in opposite directions. Most financial advisers recommend you invest in multiple asset classes in order to have a well-diversified portfolio and minimize risk.

4. Asset Allocation Fund

An asset allocation fund is a diversified portfolio consisting of various asset classes. Most asset allocation funds have a mix of stocks, bonds, and cash equivalents. These types of funds can be popular as some advisors stress the importance of having diverse portfolios to minimize potential losses.

5. Beta

Beta refers to how risky or volatile a security or portfolio is compared with the market overall. Calculating the beta of the stocks in your portfolio can help you determine how your portfolio might respond to market volatility. You can also gauge the beta of a stock to help determine how much risk it might add to your portfolio.

6. Bear Market

A bear market occurs when the market declines, typically when broad market indexes fall 20% or more in two months or less. Bear markets can accompany a recession, but not always. They often signal that investors feel pessimistic about their investments’ ability to make money and the market’s ability to rebound.

7. Bull Market

A bull market is the opposite of a bear market, meaning prices are rising or are expected to rise for extended periods of time. Bull markets usually mean security prices are rising for months or even years at a time.

8. Blue Chip

Blue chip companies are generally thought to be well-established, financially sound, and therefore high-quality investments. Blue chip stocks are typically large companies, and many of them are household names. In some cases, blue chips may be more expensive to invest in since they can be considered relatively stable and likely to grow.

9. Bonds

When governments or corporations need to borrow money they issue bonds. Investors who buy the bonds are effectively loaning that entity cash, which will be repaid according to the terms of the bond (e.g. a 10-year bond with an interest rate of 3%). Bonds are often considered to be relatively stable, lower-risk investments compared with stocks.

10. Broker

An investment broker, whether a person or a firm, acts as a middleman to help investors buy and sell securities. Brokers may be necessary because some securities exchanges only allow members of that exchange to make an investment order. A broker’s primary function is to help clients place trades, although many brokers also help clients with market research and investment planning.

11. Diversification

You’ve probably heard that you should aim to have a diversified portfolio. That means investing in a range of asset classes that are likely to behave differently under different market conditions, in order to mitigate risk. A portfolio of only stocks, for instance, could be more vulnerable to market volatility than a portfolio that also included bonds, real estate, commodities, and so on.

12. Dividends

When a company shares their profits with investors, these are called dividends. Dividends are often paid in cash (although they can be paid in stocks). Some companies — e.g. many blue chip firms — pay dividends, but not all companies do. Ordinary dividends are taxed differently than qualified dividends, so you may want to consult a tax professional if you own dividend-paying stocks.

13. Dollar Based Investing

Also called fractional share investing, dollar based investing is a way for investors to buy partial shares of stocks. Instead of buying shares of a company, you instead invest a dollar amount. Dollar based investing is a great way for smaller investors to buy into popular companies that they may otherwise be priced out of.

14. EBITDA

EBITDA is a way to evaluate a company’s performance that is considered more precise than simply looking at net income. EBITDA stands for: earnings before interest, taxes, depreciation, and amortization. To calculate EBITDA, use the following formula: Net Income + Interest + Taxes + Depreciation + Amortization.

15. EBIT

EBIT is a simpler way to calculate a company’s profits than EBITDA, as it’s only one part of the EBITDA equation (literally!). It stands for “earnings before interest and taxes.” It’s calculated using this formula: Net Income + Interest + Taxes.

16. EPS

EPS stands for earnings per share, which is a common way investors measure how well a stock is performing. EPS is calculated by finding a company’s quarterly or annual net income and dividing it by the company’s outstanding shares of stock. Increases in EPS can be a sign that the company’s profit performance is on the upswing, whereas a decrease can be a red flag for investors.

17. ETF

Exchange-traded funds, or ETFs, are similar to mutual funds in that the fund’s portfolio can include dozens or even hundreds of different securities, and investors buy shares of the fund. Unlike mutual funds, ETF shares can be traded like stocks throughout the day (mutual fund shares are traded once a day). Most ETFs are considered lower-cost, passive investments because they track an index, although there are actively managed ETFs.

18. Expense Ratio

An expense ratio is an annual fee investors pay to cover the operating costs of mutual funds, index funds, ETFs and other types of funds. Fees are typically deducted from your investments automatically (you don’t pay a separate charge), and they can reduce your returns over time so it’s wise to shop around for lower fees. Expense ratios are calculated using this formula: Total Funds Costs / Total Fund Assets Under Management.

19. FCF

Free cash flow is the money a company has after it has paid its expenses. This number is important to investors because it can show them how likely it is that a company could have extra cash for dividends or share buybacks. A continuous decrease in free cash flow over a few years can also be a red flag to investors.

20. Growth Stock

Growth stocks are shares in a company that’s growing faster than its competitors, typically showing potential for higher revenue or sales. Growth stock companies may be considered leaders in their industry.

21. Hedge Fund

Hedge funds are usually managed by an LLC or limited partnership that invests in securities and other assets using money from multiple investors. Hedge funds tend to be more risky and expensive than mutual funds or ETFs, which often makes them accessible to more wealthy investors.

22. Index Fund

Index funds are a type of mutual fund that invest in securities that mirror a particular index, such as the S&P 500 Index or the MSCI World Index. Indexes track many different sectors, from smaller U.S. companies to big global companies to various kinds of bonds. Each index acts as a proxy for how that market sector is performing; the corresponding index funds reflect that performance.

23. Interest Rate

The interest rate is the amount a lender charges to borrow money — and it can also mean the amount your cash earns in a savings, money market or CD account. The baseline interest rate in the U.S. is set by the Federal Reserve. This rate in turn influences savings rates, mortgage rates, credit card rates, and more. Generally, when the Federal Reserve lowers interest rates, the stock market tends to rise.

24. Large Cap

A large-cap company has $10 billion or more in market capitalization. These companies are often considered industry leaders, and are relatively conservative, low-risk, and safe investments. A company’s stock may be considered large cap, mid cap, or small cap.

25. Market Cap

Market capitalization, or market cap, is the value of a company’s total outstanding shares. It’s often used to measure a company’s value and build a diversified portfolio. You can calculate market cap by multiplying the number of outstanding shares by the current price per share. Companies with lower market caps usually have more room to grow and usually are associated with newer companies, meaning they can also be riskier.

26. Mid Cap

Mid-cap companies are usually between $2 billion to $10 billion in market capitalization, putting them somewhere between small- and large-cap companies. Many mid-cap companies are in a growth phase, making them attractive to some investors who believe the company may grow into a large-cap over time, although this is not guaranteed to happen.

27. Mega Cap

Mega-cap companies are the largest companies you can invest in, with a market value of $1 trillion or more. Mega-cap stocks are typically industry leaders and household name brands, like Apple or Microsoft.

28. Mutual Fund

Mutual funds may invest in stocks, bonds, and other securities — or a combination of these (e.g. a blended fund). Mutual funds can also be industry-specific (such as a mutual fund consisting only of energy stocks, green bonds, or tech companies, and so on).

29. Net Income

When talking about investing, net income usually refers to how much a company makes (or its total losses) after it has paid all its expenses. Net income is therefore usually calculated by subtracting a company’s expenses from its revenue. Investors may want to know a company’s net income because it can help determine how profitable the company is, although EBITDA (defined above) is another measure.

30. Over-the-Counter Stocks

Not all stocks are publicly traded. These “private” stocks, often called over-the-counter stocks, usually have to be traded through a broker. Companies may offer OTC stocks if they don’t meet the requirements to be traded publicly. Such companies are often startups or other small companies. So, while these companies may eventually grow to be able to trade publicly, investing in them also carries the risk that they may fold or even engage in fraudulent activity since the market is far less regulated than publicly traded markets are.

31. Price-to-Earnings Ratio

Investors commonly use P/E or price-to-earnings ratios to gain insight into how profitable a company is compared to its stock price. In other words, price-to-earnings ratios can help investors decide if the price of a stock is worth it when compared to how much a company is making.

32. Prime Interest Rate

Banks are likely to offer their best customers — those with the best credit histories and the lowest risk of defaulting — a prime interest rate for a loan. The prime interest rate is generally the lowest rate the bank will offer. A bank’s criteria for determining their prime interest rate may vary, but most banks consider the federal funds rate when setting any interest rate.

33. Portfolio Management

Portfolio management simply refers to how you select and manage the investments in your portfolio. There are many different management styles, such as active or passive, growth or value. Additionally, you can elect to manage your own portfolio or hire an individual or group to manage it for you.

34. Preferred Stock

A preferred stock means investors own shares in a company and get scheduled dividends, similar to how bond interest payments work. Preferred socks may not fluctuate in price like common stocks do, meaning they are often less volatile and risky.

35. Profit & Loss Statement

You probably know what profit and losses are, but do you know how to read a company’s P&L or profit & loss statement? It can help you determine a company’s bottom line, as it can show you how well a company is doing compared to its peers in the same industry. If you’ve never read one before, this article about profit & loss statements could give you some tips on what to look for.

36. Prospectus

Companies that offer stocks, bonds, and mutual funds to investors are required to file a prospectus with the Securities and Exchange Commission that provides details about the investment they are offering (e.g. the expense ratio, the constituents of a fund, and more). Investors can use the prospectus to better understand a given security and how it might fit in their portfolio, or not.

37. Recession

A recession is a period of economic contraction. The National Bureau of Economic Research (NBER) defines a recession further as a decline in monthly employment, personal income, and industrial production. As an investor, a recession may indicate a drop in the value of your portfolio, although this may be temporary: When looking at the history of U.S. recessions, the stock market has typically rebounded after recessions.

38. REIT

Real estate investment trusts (REITs) are a way that investors can further diversify their portfolios. Instead of having the responsibility of managing an investment property yourself, you can invest in REITs, which are generally large-scale real estate projects that investors can help fund in exchange for partial ownership. Most REITs are publicly traded and pay dividends to investors.

39. Retained Earnings

When looking for a company’s net income statement, you may come across the term “retained earnings,” also sometimes called unappropriated profit, uncovered loss, member capital, earnings surplus, or accumulated earnings. In general, retained earnings is the amount of money a company keeps and potentially reinvests after it gives its investors a dividend payout. As an investor, knowing whether a company had positive retained earnings can help you determine how much money it has to continue growing. If its retained earnings are negative, that could be a sign the company is in debt and may not be a good investment.

40. Return on Equity

Return on equity, sometimes called return on net worth, can help investors compare how well companies are managing their stockholders’ contributions. You can calculate it using this formula: Net income/Average shareholder equity. A higher return on equity can signal to investors that a company is managing its money efficiently.

41. ROI

Return on investment (ROI) is just that: the return you get after making an investment in a stock, bond, mutual fund, and so forth. Investors generally hope for a positive ROI, meaning that their investment has made a profit. While a good ROI will vary depending on the type of investments you’re making, some investors look to the historic return of the stock market (about 7%) as a barometer.

42. Small Cap

A small-cap company usually has a market cap of $250 million to $2 billion. Investors may be attracted to a small-cap company because they believe it has growth potential or may be undervalued.

43. SPAC

SPAC stands for special purpose acquisition company. SPACs are shell companies that list shares on an exchange to raise money so they can merge with a privately held company. Once the merger between the public SPAC and the private company is complete, that company is now in effect a public company — which is why a SPAC is sometimes called a backdoor IPO. Many companies may elect to use SPACs instead of traditional IPOs because they are often faster and less expensive.

44. Stocks

If you’ve made it this far, you probably know what a stock is. To review, a stock is a way to buy a piece of ownership into a company. You can buy and sell your stocks depending on whether you anticipate your stocks will decrease or increase in value.

45. Stock Exchange

A stock exchange is the place where you buy, sell, or trade stocks. Common U.S. stock exchanges are the New York Stock Exchange (NYSE) and the Nasdaq.

46. Stop-Loss Order

A stop-loss order can help investors have more control over their stocks. When a stock reaches a certain price that you choose, your broker will sell, buy, or trade that stock. Having a stop-loss order can help you limit how much money you make or lose in the stock market.

47. Target Date Fund

A target date fund is a type of mutual fund that includes a mix of asset classes to provide investors with a portfolio that adjusts over time to become more conservative as they age. Target date funds are often used to help investors plan their retirements. Target funds are typically constructed around various target retirement years (e.g. 2030, 2040, 2050) so investors can pick a date that corresponds with their hoped-for retirement.

48. Value Stock

A value stock is a stock that investors believe is undervalued and/or inexpensive compared to its past prices on the stock market or with its competitors. Investors may consider a stock’s price-to-earnings ratio to help them determine if something is a value stock.

49. Venture Capital

Venture capital is money a startup uses to grow its business. This money usually comes from private investors or venture capital firms. Investors may elect to invest venture capital into startups they believe have the potential to be profitable with time.

50. Yield

Yield is another way of referring to the return of an investment over a set period of time, expressed as a percentage. You may hear the term in relation to bonds (e.g. high-yield bonds), but yield is more accurately a measure of the cash flow an investor gets on the amount they invested in a security during that time period, and is different from total return.

The Takeaway

Getting familiar with a few key investing words and phrases can go a long way in helping you gain confidence when you’re new to investing. Getting fluent with investing terminology is like any other pursuit — there’s a learning curve at first, but the terms will feel more natural as you move forward and start investing regularly. If you need some extra help decoding investment terminology, opening a SoFi Invest® brokerage account could also help: SoFi Members get complimentary access to a qualified financial advisor.

Photo credit: iStock/akinbostanci


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected] Please read the prospectus carefully prior to investing. Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.
Advisory services are offered through SoFi Wealth, LLC an SEC-registered Investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at adviserinfo.sec.gov .
SOCO0821101

Read more
How to Use Social Media for Investing Tips: The Smart Way

How to Use Social Media for Investing Tips: The Smart Way

Social media has become an important new source for many people, including for investors looking for ideas to guide their strategy. That said, social media users must be careful when sifting through the vast quantities of information on the web to make sure they’re relying on legitimate sources.

There are a variety of social media platforms that investors use for information, including Twitter, Facebook, LinkedIn, Stocktwits, and even TikTok. While there are potential benefits to using social media to invest, there are also plenty of pitfalls.

Why Understanding Social Media Investing Is Important

In 2013, the Securities and Exchange Commission (SEC) allowed companies to start using social media platforms like Facebook and Twitter to communicate information to investors. As long as companies tell investors which website to check, they can use social media to announce information like company metrics that may influence stock price. Individuals interested in investing in a particular company may want to follow that company directly to stay abreast of breaking news.

Social media can also be an important place to gather information from analysts and financial bloggers who post their thoughts about stocks and news events or upcoming IPOs. Since these folks are typically reacting to news, following them may be a way to stay on top of popular investment trends. More than a third of young investors say that they now use social media to look into possible investments, making it their most popular source of investing information ideas.

Recommended: 10 Popular Investing Trends

Recently, social media has entered the investment space in a new way with the rise of meme stocks. Meme stocks are companies that experience increased volume in trades due to hype on social media. Perhaps the original, and most famous, meme stock is GameStop. Retail investors encouraged each other to buy shares of the company over the subreddit message board r/wallstreetbets to force a short squeeze among hedge fund investors betting against the stock. Together these retail investors drove the share price up nearly 8,000% by late January 2021.

Recommended: A Guide to WallStreetBets Lingo

Because investor sentiment, rather than company fundamentals, often fuels meme stock price increases, they can be extremely volatile. While meme stock investing can be exciting, it can also expose investors to large amounts of risk.

How to Use Social Media When Investing

Individuals aren’t the only ones using social media to guide their investing decisions. Fully 80% of institutional investors said that social media is part of their regular workflow. If you want to use social media as a way to inform your investment decisions, there are a few strategies to consider.

1. Follow Companies in Which You Invest (or Want to Invest)

Directly following a company’s social media accounts ensures the information you receive is timely and accurate.

2. Follow Informed Experts

Follow news sources, journalists and analysts who cover the companies and sectors, such as healthcare or electric vehicles, in which you’re interested. Consider people who have large followings, a good clue that they provide information that is useful to a broad range of investors.

3. Use Tech Tools

Some brokerages offer social media tools such as social sentiment trackers that aggregate and analyze information that’s posted on social media sites. For example, some firms use software to compile information from Tweets, blog posts, and messages. Others offer in-house social media platforms that allow investors to communicate with each other to discuss trading ideas. Or they may offer crowd-sourced research and analysis, using a website or app to gather ideas and opinions from the public at large. For example, analysts, investors and academics might weigh in with their thoughts on earnings estimates.

It’s important for investors to beware that these tools can be inaccurate or misleading. Data gathered from social media may be old, or contain hidden agendas. Read all disclosures offered by social sentiment tools to understand how they collect data and any risks or conflicts of interest.

Recommended: Understanding Market Sentiment

Social Media Investing Mistakes to Avoid

While social media can be a helpful tool for investors, it also has several pitfalls that investors should understand.

1. Impulsive Decisions

Information driven by social media, such as discussion boards or buy/sell indicators based on social sentiment can drive investors toward emotional investing, especially when information appears in real time. Impulsive investments carry additional risks. Trading securities without proper due diligence can lead you to buy stocks as prices are peaking, or sell as prices tumble, locking in losses and missing out on potential rebounds. Avoid allowing social media to feed the tendency to time the market.

2. Failing to Do Your Own Research

Think of information you get from social media as a jumping-off point, something that sparks your interest and leads you to do more research.

For example, if someone posts about how great they think a stock is, take a look at the company’s financials yourself. Look at past and present earnings reports to understand trends. You can find out this and other information on a company’s quarterly report. Look at the annual report as well. It will let you know about any risks the company foresees in its future. In addition, look at what a number of analysts are predicting the company’s earnings will be in the future.

You may also want to consider broader economic indicators or market measures, such as the Fear & Greed Index.

3. Trusting Bots

Bots are programs—not humans—built to engage on social media. It’s not always clear what their agenda is, and they certainly don’t have your best interests in mind. There are several signs that an account could be a bot, including:

• No profile picture

• Strange numbers of characters in the account name

• Posting at irregular hours

• Repetitive, formulaic language

• Repeated posting on the same subject or the the link

The Takeaway

Social media has become an important way to gather investment information. But learning to recognize reliable sources is critical to finding accurate and useful information to create a strategy whether you’re investing in stocks, bonds, options, or other financial securities. What’s more, investors must understand the behavioral biases that social media investing can trigger, namely the temptation to time the market.

To avoid this pitfall, create and follow a long-term financial plan. Use social media to research stocks and funds that fit your plan, including your time horizon and tolerance for risk. Ready to invest? You can open an account on the SoFi Invest brokerage platform to get access to both active and automated investing services with competitive fees and no account minimums.

Photo credit: iStock/GOCMEN


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN0821338

Read more
Options Pricing: How Options Are Priced

Guide to Options Prices: How are Options Priced?

Options are derivative financial instruments that give the buyer the right (but not the obligation) to buy or sell an underlying security, such as a stock, within a predetermined time period for a predetermined price, known as the strike price.

Investors like options because they allow the investor to bet on the price increase or decrease of a stock, without owning the stock itself. There are two main types of options: call options and put options. An investor who buys a call option buys the right to buy the option’s underlying asset. An investor who purchases a put option is buying the ability to sell the option’s underlying asset.

Recommended: A Guide to Options Trading

How is an Option Price Determined?

The sellers of an option take many different factors into account to determine the price, or premium, of an option. The most widely known method for determining the value of an option is the Black-Scholes model. But other models – such as the binomial and trinomial options pricing models – are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• the market price of the stock that underlies the option

• the current intrinsic value of the option

• the time until the option expires

• volatility

Market Price and Intrinsic Value

The first is easy to understand – it’s the price at which the underlying stock is trading. The second – the intrinsic value of the option – is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Recommended: Popular Options Trading Terminology to Know

Time Value

The time until expiration is more complex. It represents the possibility that an out-of-the-money option could eventually become profitable. This so-called time value reflects the amount of time an option has until it expires. It’s one part of an option’s value that only goes down – and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date gets closer, the underlying stock must make bigger moves for those price changes to make significant changes in stock options pricing.

Volatility

That time value reflects the volatility of the underlying security, as well as the market’s expectation of that security’s future volatility. As a general rule, stocks with a history of high volatility underlie options that with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by beta, which is the volatility of a given stock versus the volatility of the overall market. And options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

Recommended: Understanding The Greeks in Options Trading

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• the underlying stock’s price

• the option’s strike price

• current interest rates

• the option’s time to expiration

• the underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The Binomial Option Pricing Model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial model reflects on a very simple assumption – that in any pricing scenario the premium will go one of two ways: up or down.

As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs as other models, with the ability to update the equation as new information emerges. In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements, and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Understanding how options pricing works is important, whether you’re interested in trading options or not. However, you can also build a more straightforward portfolio that does not use options at all.

A great way to get started is by opening an account on the SoFi Invest brokerage platform. SoFi Invest offers an active investing solution that allows you to choose stocks and ETFs without paying SoFi commissions. SoFi Invest also offers an automated investing solution that invests your money for you based on your goals and risk.

Photo credit: iStock/ljubaphoto


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN0721309

Read more
bitcoins on yellow background

Understanding The Different Types of Cryptocurrency

When Bitcoin launched in 2009, it didn’t have much — or any — competition in the newly minted realm of digital currency. By 2011, though, new types of cryptocurrency began to emerge as competitors adopted the blockchain technology bitcoin was built on to launch their own platforms and currencies. Suddenly the race to create more crypto was on.

Today there are thousands of different types of cryptocurrency, and while each is designed to provide some new feature or function, most are founded on similar principles to those that established bitcoin:

•  Cryptocurrencies are not issued, regulated, or backed by a central authority like a bank.

•  They are created using a distributed ledger (blockchain) and peer-to-peer review.

•  Bitcoin and other coins are encrypted (secured) with specialized computer code called cryptography.

•  As assets, cryptocurrencies are generally stored in digital wallets, commonly a blockchain wallet, which allows users to manage and trade their coins.

As of September 2021, estimates of the different types of cryptocurrency you can trade range from nearly 6,000 coins to over 10,000, with a total market capitalization of nearly $2 trillion.

What Are the Different Types of Crypto?

Different types of crypto generally fall into one of two categories:

•  Coins, which can include Bitcoin and altcoins (non-Bitcoin cryptocurrencies)

•  Tokens, which are programmable assets that live within the blockchain of a given platform.

Though many people use the words crypto, coins, and tokens interchangeably, it’s important to understand how they differ from one another in order to gain a basic understanding of cryptocurrency.

Crypto Coins vs. Tokens

While coins and tokens are considered forms of cryptocurrency, they provide different functions. Coins are built on their own blockchain and they’re intended as a form of currency. Ether (ETH) is the cryptocurrency based on the Ethereum blockchain, for example.

Generally, any blockchain-based cryptocurrency that is not bitcoin is referred to as an altcoin (more on those below).

Tokens are also built on an existing blockchain, but they aren’t considered currency but rather programmable assets that allow for the creation and execution of unique smart contracts. These contracts can establish ownership of assets outside of the blockchain network. Tokens can represent units of value—including real-world items like electricity, money, points, coins, digital assets, and more—and can be sent and received.

For example the BAT, or Basic Attention Token, is built on the Ethereum platform and is used in digital advertising.

What Are Altcoins?

The name “altcoin” began as a shorthand for “alternative to Bitcoin,” and most altcoins were launched to improve upon Bitcoin in some way. Some examples of altcoins include: Namecoin, Litecoin, Peercoin, Ethereum, and USD Coin.

Like Bitcoin, some cryptocurrencies have a limited supply of coins — which helps create demand and reinforce their perceived value. For example, there is a fixed number of Bitcoins that can be created — 21 million, as decided by the creator(s) of Bitcoin.

Though most altcoins are built on the same basic framework as Bitcoin and share some of its characteristics, each one offers investors something different. Some altcoins use a different process to produce and validate blocks of transactions. Some might offer new features, like smart contracts or an advantage like lower price volatility.

Tokens

Tokens are usually created and given out through an Initial Coin Offering, or ICO, very much like a stock offering. They can be represented as:

•  Value tokens (like bitcoins)

•  Security tokens (which are similar to stocks)

•  Utility tokens (designated for specific uses)

Like American dollars, tokens represent value, but they are not exactly valuable themselves, in the same way a paper dollar’s value may not be $1. But tokens can be used in transactions for other things.

A token differs from a coin in the way it’s constructed within the blockchain of an existing coin like Bitcoin or Ethereum.

Ready to add crypto
to your portfolio?


The 10 Most Common Types of Cryptocurrency

Here’s a list of the 10 biggest cryptocurrencies by market capitalization, according to CoinMarketCap as of 9/14/21. Because there are so many virtual currencies at wildly varying prices, market cap helps to identify those with the highest valuation. Note that the name of the blockchain platform may be different from its digital currency.

1. Bitcoin

Bitcoin was the first cryptocurrency to be created in 2009 by a person (or possibly a group) that goes by the pseudonym Satoshi Nakamoto. As noted above, there are more than 18.8 million Bitcoin tokens in circulation as of September 2021, against a capped limit of 21 million.

Bitcoin was designed to be independent of any government or central bank. Instead it relies on blockchain technology, a decentralized public ledger that contains a digital record of every Bitcoin transaction. Bitcoin established the basic system of cryptography and consensus (i.e., peer-to-peer) verification that is the foundation of most forms of crypto today.

So-called bitcoin miners use powerful computers to verify blocks of transactions and generate more bitcoins — a complex, time-consuming process called proof-of-work (PoW). The transactions are logged permanently on the blockchain — which helps to validate and secure each bitcoin and the network as a whole. Recently, the vast amount of energy required to create Bitcoin has raised concerns about environmental pollution.

2. Ethereum

Like Bitcoin, Ethereum is a blockchain network, but Ethereum was designed as a programmable blockchain, meaning it wasn’t created to support a currency — but to enable the network’s users to create, publish, monetize, and use applications (called “dApps”). Ether (ETH), the native Ethereum currency, was developed as a form of payment on the Ethereum platform.

As of September 2021, Ether was the number two virtual currency, behind Bitcoin. ETH is also generated using a proof-of-work system. But unlike Bitcoin, there is no limit to the number of ETHs that can be created.

Ethereum has helped fuel many initial coin offerings, since many of the ICOs used Ethereum blockchain. Ethereum has also been behind the boom in non-fungible tokens (NFTs) — digital versions of art or collectibles that are linked to a blockchain and made one-of-a-kind.

3. Cardano (ADA)

Cardano bills itself as a third-generation blockchain platform, to cast itself as a next-level player. Cardano relies on proof-of-stake (PoS), meaning that the complicated PoW calculations and high electricity usage required for mining coins like Bitcoin aren’t necessary, potentially making its network more efficient and sustainable.

Cardano’s cryptocurrency is called ADA, after Ada Lovelace, a 19th-century mathematician.

Cardano’s main applications are in identity management and traceability. The first application can be used to streamline the collection of data from multiple sources. The latter can be used to audit a product’s manufacturing path, and potentially prevent fraud and counterfeit goods.

Cardano is being built in five phases toward achieving its goal of developing the network into a decentralized application (dApp) platform with a multi-asset ledger and verifiable smart contracts. Each phase, or era, in the Cardano roadmap is anchored by its research-based framework and peer-reviewed insights, which have helped establish its scholarly reputation.

4. Binance Coin (BNB)

Binance is one of the world’s biggest cryptocurrency exchanges, and Binance Coin (BNB) is a cryptocurrency token that was created to be used as a medium of exchange on Binance. It was initially built on the Ethereum blockchain, but now lives on Binance’s own blockchain platform.

BNB was created as a utility token in 2017 that allowed traders to get discounts on trading fees on Binance, but now it can also be used for payments, to book travel, for entertainment, online services, and even financial services.

BNB was created with a maximum of 200 million tokens, about half of which were made available to investors during its ICO. Every quarter, Binance buys back and then “burns” or permanently destroys some of the coins it holds to drive demand. In July 2021, Binance completed its 16th burn, of about 1.29 million BNB, roughly equal to $394 million at that time.

5. Tether

Tether was the first cryptocurrency marketed as a “stablecoin” — a breed of crypto known as fiat-collateralized stablecoins. The value of the tether is pegged to a fiat currency — in this case, the U.S. dollar.

Like other stablecoins, the tether is designed to offer stability, transparency, and lower transaction charges to users. Tether is not a speculative investment like some cryptocurrencies; rather it can be used by investors who want to avoid the extreme volatility of the crypto market. As of February 2021, 57% of bitcoin trading was conducted using tethers.

Tether is pegged to the U.S. dollar (which is why the ticker is USDT), and it allegedly maintains a 1:1 value with the dollar, although this claim has come under some scrutiny. According to the company, there is no guarantee provided by Tether, Ltd. for any redemption of tethers; i.e., tethers cannot be exchanged for U.S. dollars.

6. Solana

Solana is a blockchain platform that generates the cryptocurrency known as Sol. One of the more volatile currencies of late, the Sol was trading at about $191.00 on Sept. 10, 2021 — and one year ago it was worth $3.42. What accounts for its growing presence in the land of crypto?

Solana has made strides in decentralized finance (a.k.a. DeFi) and specifically its smart contract technology, which are programs that run on the platform according to preset conditions (like paper contracts, but without the middlemen). Solana was also behind the “Degenerate Ape Academy,” a non-fungible token (NFT) that was launched in August 2021.

7. XRP

XRP was developed by Ripple Labs, Inc. And while some people use the terms XRP and Ripple interchangeably, they are different. Ripple is a global money transfer network used by financial services companies. XRP is the crypto that was designed to work on the Ripple network. You can buy XRP as an investment, as a coin to exchange for other cryptocurrencies, or as a way to finance transactions on Ripple.

Unlike Bitcoin and many other cryptocurrencies, XRP can’t be mined; instead there is a limited number of coins — 100 billion XRP that already exist. Also, XRP doesn’t rely on a complex digital verification process via blockchain the way Bitcoin and others do. The Ripple network employs a unique system for validating transactions in which participating nodes conduct a poll to verify transactions. This makes XRP transactions faster and cheaper than Bitcoin.

8. Dogecoin

Dogecoin (pronounced dohj-coin) is widely known as the first joke cryptocurrency; it was launched in 2013 as a way to poke fun at Bitcoin. Nonetheless, the currency captured people’s attention and a fair amount of investment. In April of 2019, a tweet from Elon Musk indicated he had a positive view of Dogecoin, which further raised Dogecoin’s profile as a legitimate cryptocurrency.

Dogecoin is an altcoin similar to Bitcoin and Ethereum in that it’s run on a blockchain network using a PoW system. But the number of coins that can be mined are unlimited (versus the 21 million-coin cap on Bitcoin).

Dogecoin is also associated with some headline moments in crypto; investors paid the equivalent of about $30,000 in Dogecoin to help send the Jamaican bobsled team to the Winter Olympics in 2014.

Despite its place as one of the biggest coins by market cap, it trades at one of the lowest prices: about 24 cents, as of Sept. 10, 2021.

9. Polkadot (DOT)

Polkadot was co-founded by Gavin Wood, also a co-founder of Ethereum, to take the capabilities of a blockchain network to another level. The blockchain’s cryptocurrency is called dot.

In fact, Polkadot operates using two blockchains — the main “relay” network, where transactions are permanent, and a parallel network of user-created blockchains, called “parachains.” Parachains can be customized for myriad uses like building apps (they can even support other coins), and they benefit from the security of the main blockchain.

What differentiates Polkadot from other blockchains is its core mission to solve the problem of interoperability by building so-called bridges between blockchains. Polkadot is not the only system trying to act as a translator to help blockchains talk to one another, but since it was established in 2020, it has become one of the bigger networks in a relatively short time.

10. USD (USDC)

USD Coin (USDC) is a stablecoin that runs on the Ethereum blockchain and several others. It is pegged to the U.S. dollar. Meaning that, like the stablecoin tether (USDT) described above, a USDC is worth one U.S. dollar — the guaranteed 1:1 ratio making it a stable form of exchange.

The goal of having a stablecoin like USDC is to make transactions faster and cheaper. While there are questions about whether the tether stablecoin is fully backed by U.S. dollar reserves, some investors believe that USDC is more transparent: its reserves are monitored by the American arm of Grant Thornton, LLC, a global accounting firm. On March 29, 2021, Visa announced the use of USDC to settle transactions on its payment network. As of June 2021 there were 24.1 billion USDC in circulation.

The Role of Miners in Cryptocurrency

How exactly do you get your virtual hands on different types of cryptocurrency? You can buy it the old-fashioned way, by buying it on an exchange like Coinbase (or using your SoFi Invest® account). You can also trade crypto on an exchange for other types of crypto (for example, using tethers to buy bitcoin). Some blogs and media platforms pay their content providers in crypto.

Then there are the miners. Miners usually don’t pay directly for their crypto; they earn it in various ways: e.g., through a painstaking, high-tech process of verifying transactions on a blockchain network.

Sounds sweet, but mining isn’t cheap. It requires powerful, expensive hardware and lots of electricity, and the competition can be fierce.

Hard Forks vs. Soft Forks and Why They Matter

Sometimes, a cryptocurrency — whether Bitcoin or an altcoin — forks. The concept is similar to reaching a literal fork in the road, where you have to pick one direction or the other. But with crypto forking is more complicated (of course), as it involves the nodes or computers that store, maintain, and validate the blockchain. Also, there are hard forks and soft forks.

In simplest terms, a fork creates a divergence in the blockchain protocol. A fork typically happens when the blockchain needs an upgrade or update; there’s evidence of hacking or fraud; or a large enough group of miners decide to change the network’s protocol.

Hard Forks

Developers might implement a hard fork for a variety of reasons, like correcting security risks found in older versions of the software, to reverse transactions, or add new functionality. For example, in September 2021 the Cardano blockchain forked in order to allow more smart-contract capabilities.

Some memorable hard forks include several on the Bitcoin platform that led to the creation of new crypto (e.g. Bitcoin Cash, Bitcoin Gold), and one on the Ethereum platform that addressed a massive crypto heist by reversing the fraudulent transactions on the old blockchain by forking to create a new blockchain.

Typically, a hard fork requires all miners on the platform to agree to the new update, which in effect creates a new branch of the blockchain.

Soft Forks

Soft forks are different from hard forks in that they are “backwards compatible.” This means that the change to the software protocol only makes previously valid transactions invalid. Old nodes will still recognize the new blocks as valid.

Soft forks don’t require any nodes to upgrade to maintain consensus, since all blocks with the new soft forked-in rules also follow the old rules, therefore old clients accept them.

The Takeaway

While Bitcoin launched the crypto craze a little more than a decade ago, today there are thousands of different cryptocurrencies that investors may want to learn about and invest in.

But cryptocurrencies aren’t like other real-world, fiat currencies, like the dollar, euro or yen. Those are tangible currencies, governed by central authorities, and they all operate in the same way as a store of value. Meaning: You can exchange any fiat currency for goods and services. Cryptocurrencies — which can include different types of coins (e.g. stablecoins, utility coins) and tokens (programmable assets) — serve many purposes.

As an investor, the guide to the top 10 different types of cryptocurrency above provides a grounding in what the biggest currencies are, but how and why they differ from each other. This can help you decide how best to invest in crypto. And what better place to start investing in cryptocurrency than by opening an account with SoFi Invest®? SoFi Members can manage crypto investments in the SoFi app, with the peace of mind of knowing their crypto is in a secure platform.

Find out how SoFi Invest can help you with your investment goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
SOIN19040

Read more
TLS 1.2 Encrypted
Equal Housing Lender