Cryptocurrency and should I invest in it. These days, it’s the hottest term in finance. But what exactly is digital currency? Have you ever heard of Bitcoin? How about Dogecoin? Litecoin? XRP? Ethereum? These aren’t the titles of cringeworthy bands from the ’90s. They are distinct forms of digital currency (aka digital money). In addition, they’re currently popular everywhere you look.
But here’s the question that’s worth a million dollars (or a million bitcoins? Is it wise to put money into cryptocurrency? Despite what every internet troll shouts at you from their virtual soapbox, investing in cryptocurrencies is risky. In a moment, however, we’ll delve deeper into that topic. First, though, let’s define just what it is that crypto is.
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A Definition of Cryptocurrency.
Cryptocurrencies are a form of digital currency used both as a store of value and a medium of exchange. You can buy “coins” or “tokens” of a certain cryptocurrency with fiat cash like dollars.
Picture this: You can think of cryptocurrency as akin to making a monetary exchange in a foreign country. In the United States, you can get a good meal for a Benjamin, but in Italy, you’ll need Euros. That products and services can be bought with dollars and euros gives them worth. Likewise, this also applies to cryptocurrencies. You can convert your cash into cryptocurrency and spend it the same way you’d use regular cash (at places that accept it as a type of payment).
So, where exactly do we derive the term “cryptocurrency” from? That’s a great question, and we’re happy you asked. It’s derived from cryptography, which is the study of creating and cracking codes. This might be the plot of an Indiana Jones movie, right? Cryptocurrency coins can be thought of as individual bits of code. Additionally, since cryptocurrencies cannot be duplicated, they can be easily identified and tracked throughout the trading process. You’ve probably heard tales of crypto investors winning or losing hundreds of thousands of dollars. All of a sudden, it’s like we’re in the middle of a modern-day gold rush.
To What End is Crypto Money Employed?
Cryptocurrency is traded directly between users on the Internet, bypassing traditional intermediaries like banks and governments. It’s like the Wild West out there on the internet, except there’s no sheriff to keep order. In this sense, we mean: When you went out of town, did you ever hire a youngster from the neighborhood to take care of your lawn or pet? You probably paid them with hard currency. You might conduct a legal transaction without ever setting foot in a bank.
This is what it’s like to make a transaction using a cryptocurrency. As a result of its decentralized nature, no single institution (such as a central bank) can dictate their creation, value, or trade. Consequently, the value of cryptocurrencies is determined only by the demand and supply in the market. In a word, yes, it is crazy.
Following along so far? Yeah, that sounds good. That’s because we’re about to get further into the nitty-gritty of technology.
How Does One Go About Making Cryptocurrency?
Anyone can get cryptocurrency in one of two ways: either by purchasing it or by “mining” for it. Just exactly does that include, anyway? Neither a shovel nor a pickaxe will be required (don’t worry).
Blockchain technology is the foundation of cryptocurrencies. A blockchain can be thought of as a very lengthy receipt that becomes longer with each cryptocurrency transaction. There is a public ledger of all the cryptocurrency transactions ever made. There’s little doubt that it’s a Matrix-style invention.
When Not in Use, Where Do You Keep Your Crypto?
A “digital wallet,” typically accessible via an associated app or the cryptocurrency exchange from where one originally acquired the coins, is used to safely keep one’s bitcoin. Your digital wallet will provide you with a private key, a one-of-a-kind code that you will use to approve purchases online. That the transaction was legitimate can be shown mathematically.
Which Cryptocurrencies Are There, and What Are Their Differences?
Although Bitcoin is the most well-known cryptocurrency, it is by no means the only option. Litecoin, Polkadot, Chainlink, Mooncoin, and, oh, about ten thousand other coins with wacky names are on the rise. So, let’s talk about the leading candidates:
If you say “cryptocurrency,” most people will immediately think of this moniker. The reason for this is that Bitcoin was the first cryptocurrency and has been around for quite some time. Somebody using the online pseudonym Satoshi Nakamoto created Bitcoin in 2009. 1 They adore the subterranean vibe that this secret provides. But it can’t be denied that anonymity breeds a whole lot of dubiousness. Bitcoin is popular among crypto investors because they believe it is more stable than other cryptocurrencies, despite the fact that the cryptocurrency market as a whole is volatile. Furthermore, it’s worth far exceeds that of its rivals (for now).
As the second most widely used digital currency, it follows Bitcoin in prominence. The cryptocurrency Ether is similar to Bitcoin, however Ethereum also has some key differences. Ethereum is a network that can be used to perform traditional activities (like buying art) in novel ways, while Bitcoin was initially designed as an alternative to fiat currencies like the dollar.
Example: NFTs (non-fungible token; seriously, who comes up with these acronyms) have generated a trend in the cryptocurrency world for purchasing digital artwork. Ethereum’s blockchain technology enables NFTs, giving people a new entry point into the world of (digital) fine art collecting.
The cryptocurrency known as Dogecoin (pronounced “dohj-coin”) went from being a joke at the beginning of 2013 to being the most popular option for new investors today. A Shiba Inu (a dog breed) with the handle “Doge” was a popular internet meme at the time. The Doge meme inspired the creation of Dogecoin, which was later adopted as the mascot of the cryptocurrency. Oh yes, we mean business. You just can’t make this stuff up. With that in mind, it’s safe to say that you can choose from a wide variety of coins when making an investment in the cryptocurrency market. The value of these coins will fluctuate like a carnival ride on a swinging pirate ship based on the day’s fads (Dogecoin, anyone?). If you invest in cryptocurrency based on short-term trends, you could get bored of it, too (just like you would from that dang carnival ride).
What Can You Buy with Cryptocurrency?
The common perception about cryptocurrency today is that it is a good place to put money. However, the adoption and use of cryptocurrencies like Bitcoin are expanding rapidly. And as confidence in these digital currencies grows, their use in this context may explode in popularity. Whole Foods, Nordstrom, Etsy, Expedia, and PayPal are among the well-known brands that accept cryptocurrency as payment. Tokens can be traded for products and services between any two people who agree on their value.
If having the first digital perfume or digital toilet paper with flowers is your thing, you could buy those NFTs we were just talking about with cryptocurrency. Sure, they’re the real deal, but that’s a tale for another time.
Is It a Good Time to Invest in Cryptocurrency?
There are a few things you should know before you ditch your dollars in favor of Bitcoin, Ether, or Doge.
The Value of Cryptocurrency Fluctuates a lot.
It’s true that crypto has the emotional stability of a two-year-old. Its value goes through wild fluctuations, sometimes skyrocketing and then crashing, making it difficult to predict what you will receive on any given day. The market value of cryptocurrencies fluctuates wildly. It’s undeniable that some are really popular at the moment, but for how much longer will this trend last? Every time someone sneezes, the price goes down! Putting money into bitcoin is, to put it mildly, dangerous.
Important announcement: Cryptocurrency is extremely high-risk and not a sure thing. Let’s be honest: there’s danger in any investment. But why take the plunge into the unknown with something so ebb and flow?
The Cryptocurrency Market is Fraught with Ambiguity.
A lot of kinks in the operation of cryptocurrencies still need to be worked out. Consider: no one can tell you who created Bitcoin. The number of people who can effectively use the system and who have a firm grasp of its inner workings is vanishingly small. Because of this, ignorance can easily lead to being taken advantage of. If your assets are too complex for a ten-year-old to understand, they are too complicated for you. You are paving the way for a major catastrophe.
Despite the widespread belief that everyone and their grandfather is pouring money into cryptocurrencies, the vast majority of respondents (72%) and those who don’t believe bitcoin (68%) said they are still unwilling to do so.
Fraud is Simplified by the Use of Cryptocurrency.
You only need five minutes on the internet to realize that not everyone is looking out for your best interests. Criminals will resort to any means necessary, including hacking into your financial accounts, to steal your personal data and passwords. And what do you know? Because of cryptocurrency, it’s considerably simpler for them to target folks like you. Since October 2020, over $80 million has been reported lost to cryptocurrency frauds, according to data from the Federal Trade Commission (FTC). 3
Not everyone who utilizes cryptocurrencies is trying to evade taxes or engage in illegal trades. On the other hand, Bitcoin is a magnet for criminals who wish to transact illicitly while remaining untraceable. 4
The Return on Investment for Cryptocurrencies is Questionable at Best.
Investing in cryptocurrencies is similar to betting on a lottery. Since there are no genuine rules governing its circulation, its value fluctuates randomly. Similar to growth stock mutual funds, you can’t figure out the changes or calculate returns. A cryptocurrency-based long-term investment strategy is doomed to fail due to a lack of reliable data and institutional support. Here is not the place to risk your financial future on a poker hand.
Should I Put Money into Bitcoin?
Listen, if you’re interested in cryptocurrency, you can try your hand at it. Go ahead and try your luck if you have some cash, you don’t mind losing, cash you may otherwise have thrown away on a roulette wheel in Las Vegas. Not that it matters, but be assured we won’t hold that against you. But it is our hope that you will find financial success and be able to retire with peace of mind, and there is no proof that cryptocurrencies will help you do any of those things.
Putting your money into cryptocurrency is not a viable long-term financial strategy. Obviously, we aren’t predicting the end of cryptocurrency. We aren’t even implying that it’s terrible. However, our point is that there is no evidence that crypto can be used to amass riches. Here is a better strategy to consider if you are looking to put your money into something that has proven success in the past: If you’re debt-free, have a three- to six-month cushion for unexpected needs, and are ready to put away some money, you should put at least 15 percent of your take-home pay into growth stock mutual funds, which are safer than cryptocurrency.
Avoid giving in to fads simply because they’re popular. We’ve heard of people who took out a second mortgage or cashed out their whole 401(k) early to buy cryptocurrency; what a bad idea! Don’t gamble away your life savings, your hopes for retirement, and your family’s security. Don’t put money you can’t afford to lose into cryptocurrency.
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An Optimal Strategy for Financial Investments
Ultimately, what can we say? There are still far too many unknowns when it comes to cryptocurrencies, thus wealth creation takes time. Is it possible that cryptocurrency may one day be seen as a more respectable investment option? Sure. But given current circumstances, I would advise against it. Attempts to amass wealth rapidly are exactly that: attempts. Do not put all your eggs in one basket and invest everything you have in them. Talk instead to an experienced Smartest. Learn from their experience and follow a safe investment plan that doesn’t incorporate cryptocurrency or other high-risk investments. The 401(k) isn’t to be sneered at, either. It is the most popular tool used by multimillionaires to amass their fortunes.