For many of us the world of crypto remains a trendy mystery. Is this a legitimate way to earn real financial returns or a hyped up myth? Here are some basics that explain the crypto “hype” and help you decide whether you should invest in it or not.
Should you invest in crypto?
Chances are you have come across the term “cryptocurrency” while browsing articles online or reading an investment blog. Or, your nephew has come bounding in one afternoon, excitedly gibbering about the latest, greatest new addition to the crypto boom. But what is cryptocurrency and why is it so popular?
What is Cryptocurrency?
Cryptocurrency is a form of exchange based in the digital realm. These financial transactions use cryptographic algorithms to verify that the data containing the transaction is valid.
Cryptocurrency transactions take place over the internet. Cryptocurrencies use blockchain technology to keep records of all financial transactions. These blockchains are transparent to all users. That means that, unlike a traditional bank, the public can view all transaction records. So anyone who uses cryptocurrency can see on the blockchain record that their money is not being “double spent” by private institutions.
Any two parties participating in a cryptocurrency transaction will be able to send and receive money digitally with minimal fees. So, again, unlike a traditional bank, cryptocurrency users can avoid any high annual fees.
What Kinds of Cryptocurrency Are There?
While BitCoin is the most famous cryptocurrency in Canada, there are in fact over 15,000 different cryptocurrencies available. And more are being developed all the time. In general, cryptocurrencies can be divided into several categories based on what they do:
- Currency: This is the most commonly known form of crypto. Bitcoin is a great example; you can use this type of crypto as you would use any other form of currency, from dollars to euros to pesos.
- Asset: Crypto coins can also be used as an asset. This means that the digital coins themselves can accrue value over time, just as the gold standard fluctuates with time.
- System Shift: Some cryptocurrencies are designed with progress in mind. The goal of these developments is to improve or radically alter a pre-existing form of financial and/or digital exchange.
- Art Object, Joke, or Entertainment: Some serious cryptocurrencies have started out as jokes. One example, Dogelon Mars (ELON), was created in order to support future “InterPlanetary Money Transactions”. The joke has paid off. Dogelon Mars is now worth over $500 million.
Just What is All the Hype About?
Because of the nature of cryptocurrency and blockchain technology, crypto offers a radically new, decentralized mode of financial exchange. There is no central authority controlling the market, and cryptocurrencies transcend national and institutional boundaries. Each financial transaction is swift, secure, digital, and global. The blockchain serves as a vast international public ledger that contains sensitive data in a secure fashion.
Many online retailers are now offering crypto payment options. Even major banks are working with crypto clients, or looking into developing their own cryptocurrency. So not only is crypto new and exciting, but it seems that it will stick around. In essence, the core reason people are so excited about crypto is that it is a new form of currency that continues to fundamentally shift the global financial paradigm. It changes the way we conceptualize money itself.
Should You Invest?
While crypto is popular, exciting, and on the rise, potential investors should do their due diligence before putting other forms of money behind it. The field of crypto as a whole is both complex as well as volatile, with the market fluctuating rapidly at a moment’s notice. Some cryptocurrencies are more inherently risky than others, such as joke and meme currencies.
If you do want to invest, be sure that you are comfortable with the following items:
- Doing Research: Understanding the intricacies of crypto takes time and requires a bit of effort as well. Since crypto currencies change very quickly, most successful investors are those who have the time and the willingness to keep up with the research.
- Trading Online: As mentioned previously, the whole premise of crypto is that it takes place on the internet. Therefore, you definitely want to be comfortable using online platforms and apps to invest and have access to a reliable internet connection as well.
- Taking Big Risks: Since the field is still quite new, your investment may earn you huge returns or it may leave you with much less than you started with. If you aren’t comfortable with risk, this probably isn’t the investment for you.
Jason, a young and ambitious entrepreneur, wasn’t satisfied with the meager interest that his savings account paid out each month. He wanted to invest some of his money into something that would yield more returns, but wasn’t quite sure where to start. He had heard some of the guys at the gym talking about their crypto portfolios and was intrigued.
Before taking a leap into some fad currency he knew nothing about, Jason spent some time over several weekends reading up and learning about the ins and outs of crypto currency. He also scheduled a call with CleveDoesMore to discuss potential pros and cons of this type of investment strategy, as it related to his overall financial goals and plans.
After doing his homework, Jason decided to put a portion of his savings into the crypto market, allocating only as much as he was willing to lose to this venture. Over the next 8 months, there were many highs and lows, but patience paid off and Jason was able to sell his crypto for a hefty profit.
As you can see, crypto definitely has its pros and cons, just like any other type of investment. While it might not be a viable option for everyone to buy into, it seems clear that crypto is more than just hype and will be sticking around for a long time to come.
Interested in understanding more about digital currencies and discussing whether crypto would be a good addition to your portfolio and overall financial strategy?