What You Need to Know About Cryptocurrency
Cryptocurrencies have a moment. You’ve probably heard a thing or two about Bitcoin and Ethereum . Namely, their prices seem to be skyrocketing ( or falling, depending on the day ). There’s more to this story, and as the investment cliché says, don’t buy what you don’t know. So let’s find out more.
What is cryptocurrency?
Cryptography is about encryption to keep data secure, and cryptocurrency is a digital or virtual asset that uses cryptography as a security measure. For this reason, counterfeiting is difficult. Bitcoin is one of the first cryptocurrencies to hit the scene. It was launched in 2009 by Satoshi Nakamoto , a pseudonym that could be a person or a group (it was open source and peer-to-peer). The point is, there is no central agency (like a government) that issues or regulates these cryptocurrencies.
This is why it was such an attractive option for underground business activities such as money laundering . You can buy and sell it just like any other investment, from company stocks to Beanie Babies. But while companies are holding IPOs or initial public offerings, cryptocurrencies have ICOs, initial coin offerings, and any organization can launch them as investments. The Atlantic illustrates the problem of the lack of a central authority to regulate these currencies:
“Last month, tech developer Gnosis sold GNO, its internal digital currency, for $ 12.5 million in 12 minutes. The April 24 sale, intended to fund the development of the forward-looking market, has garnered admiration in Forbes and The Wall Street Journal . On the same day, in a Mumbai suburb, OneCoin was selling its own digital currency when financial law enforcement officers raided a meeting , jailing 18 OneCoin representatives and ultimately seizing over $ 2 million in investor funds. … Several national authorities have described OneCoin as the next bitcoin Ponzi scheme; by the time of the collapse in Mumbai, he had already transferred at least $ 350 million of allegedly fraudulent funds … “
According to them, “ICOs are a scammer’s nightmare” because there are no checks and balances like an IPO. So if you are going to invest in a coin, which is a rather dubious move in itself, you will certainly want to make sure that it is not just a random cryptocurrency that could just be a scam.
So what about popular and widespread tokens like Bitcoin or Ethereum? (And they are actually used as currency .) Are they a smart investment?
Is cryptocurrency a good investment?
Some people say investing is like playing the lottery. However, this is not quite true. The long-term broad investing we advocate here that will help you build a nest over time is very different from speculative, active trading , which is more like gambling. Cryptocurrency – a volatile and unpredictable investment – falls into this category.
When actively trading, you assume how a particular investment (or investments) will trade on a short-term basis. The goal is not to simply keep up with the stock market as with long-term investing; the goal is to make tons of money and get rich quick. And you know, some Bitcoin and Ethereum investors got rich really fast ! Looks pretty good, right? But the fact is that the price of these cryptocurrencies often fluctuates from one extreme to the other. (In one June day, Ethereum’s price fell from $ 319 to $ 0.10!)
Plus, every time the value of something rises too quickly, there is often a bubble, and this is exactly what Forbes contributor Clem Chambers predicts :
“Cryptocurrencies, of which bitcoin is the leader, will fall in value, and this will be more than bitcoins already had.”
Not to mention the old investment adage, “Buy low, sell high.” If you bought Ethereum right now, you are buying at a high price. That said, if you still need reasons to avoid it, the Motley Fool makes a good argument for excluding digital currency from your portfolio: your investment options are limited, there are no security protocols, and most of us don’t really fully understand. how they work. “Most people have no idea how Bitcoin or Ethereum work, or how they challenge monetary theory. It’s a dangerous formula for volatility and potential loss of money, ”says writer Sean Williams.
Bottom Line: Get-rich-quick schemes are rarely successful. Sure, people sometimes win the lottery, but for most of us, investing shouldn’t feel like playing the lottery. It should be a long game that allows you to build wealth gradually with much less risk.
How to buy cryptocurrency
That said, if you’re going to invest in cryptocurrencies anyway (you might not want to replace your entire retirement portfolio, you just need a little taste), here’s how to do it.
Coinbase seems to be the most popular option for buying Ethereum, Bitcoin or Litecoin. This is also the easiest way, according to Brian Evans of Inc.com . You have to verify your account and then you can add different payment methods for buying tokens (bank accounts, wire transfers, credit or debit cards). Evans explains:
“Other exchange options that will accept US dollars for coins are Kraken and Gemini in the US. Usually you will need to verify your account with a driver’s license and add other details to extend your shopping limits. Since cryptocurrencies are “hard currency”, exchanges do not want to risk being robbed as you cannot reverse a cryptocurrency transaction once it is completed. “
These websites will also allow you to sell your coins when you’re ready. If you have some extra money to invest, this can be an interesting experiment. I tried day trading myself just to get a better understanding of this, and while I made a decent profit in a short amount of time, I also lost a lot of money after that. Over time, everything worked out. Some short-term investors are more fortunate; others were much less fortunate. The point is, you don’t want to spend most of your money working this way.
You might be in luck with this shiny new investment, but the reality is, building wealth is pretty boring: buy a few vast, varied funds and hold them for years to come. It’s not nearly as attractive as cryptocurrency, but it’s probably a safer option for your hard-earned money.