It seems like everybody is talking about cryptocurrency like Bitcoin these days. But what is cryptocurrency, exactly, and should you be investing in it?
In this blog post we'll look into what cryptocurrency is, how to buy it, and its pros and cons. Curious? Read on.
What Is Cryptocurrency?
Cryptocurrency is a new form of money that essentially exists only in cyberspace, but in reality, is just as real as any other recognized currency. Before the days of computers, countries and societies relied on real symbols of money, like paper and coins.
Buying and selling something with this type of money still involves a transfer of wealth or value, but without having to reach into your pocket for a coin or a piece of paper.
Who Regulates Cryptocurrency?
Unlike governments, the people who own or aspire to own cryptocurrency manage it. Governments have the power to regulate the money supply, which influences the economy. When governments print more, there is more in circulation, but it’s value decreases. On the other hand, when governments print less currency, it becomes scarcer, and so its value increases. It's the basic rule of supply-and-demand.
Cryptocurrency is somewhat different. While it still follows the laws of supply-and-demand, it can’t be:
- Manipulated by printing more
- Devalued by a government or subjected to exchange rates
- Limited. This type of currency can be divided into infinitesimally small units, unlike other currencies. The penny is the smallest unit of U.S. currency, but a digital currency can be divided into tenths or hundredths many times over.
Bitcoin is the largest and most recognizable cryptocurrency. Unlike state-issued and managed currencies, Bitcoin has a market cap of $21 million, estimated to occur in 2140. After news of Bitcoin peaking in December 2017 at $19,891, it made headline news.
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How to Buy Cryptocurrency
Investors can buy cryptocurrency from “brokers” or earn it. Bitcoin requires miners who handle the transactions by coding them with unique addresses that assure their privacy and security. On a practical level, miners need dedicated computers with fast processors to handle the complex math required to code the transactions.
The miners receive a fraction of a Bitcoin for their efforts. Over time, they accumulate enough to invest more or purchase goods and services.
How to Use Cryptocurrency
You can use cryptocurrency to buy goods and services from companies who accept it. The list is growing, but relative to other kinds of acceptable payments, it is a short list. Bitcoins can also be sold to others.
What Are the Risks
Unlike money in the bank, cryptocurrency isn’t insured by the FDIC. It’s also a completely decentralized system and operates only online. No one is accountable and the fund known as DAO was hacked to the tune of $50 million in 2016. If you lose your record of it, you have no recourse to get it back.
This kind of currency can be traded for goods and services in a handful of places, compared to universality of cash, checks, and Visa and Mastercard. You can’t withdraw it from an ATM, and while you can convert it to cash, it’s not something you can do anywhere or on impulse.
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The Bottom Line
Since its inception in 1998, investors have made gains by investing in cryptocurrency, but it’s not without significant risks and challenges. Experts don't deny its potential, but do advise a cautious approach when getting started. The rules and methods for making money are completely different, and there is a steep learning curve associated with it.
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