What is Cryptocurrency and Should You Invest in It?
Have you ever heard of the term “Bitcoin-millionaire?” It refers to individuals who made millions off of the cryptocurrency known as Bitcoin. As cryptocurrency continues to make daily headlines, you’re probably wondering what it is and if it’s a worthwhile investment. Here we’ll provide you with a little bit of crypto basics and some sage advice.
What is Cryptocurrency?
Cryptocurrency is decentralized digital money based on blockchain technology. While you’ve probably heard of either Bitcoin and/or Ethereum, there are actually more than 5000 different cryptocurrencies in circulation (including the recently popular dogecoin, which has been on the rise). Cryptocurrency can be used to buy goods and services. However, it is not a widely accepted payment method at the moment. Instead, many people choose to invest in cryptocurrency as they would in other assets, such as stocks and precious metals.
How Does Cryptocurrency Work?
Unlike the U.S. dollar or the Euro, there is no central authority that manages and maintains the value of cryptocurrency. It is a medium of exchange that is digital, encrypted, and decentralized.
Cryptocurrencies rely on cryptographic methods to maintain security and fidelity. Each transaction is checked using one of two main validation methods: proof of work or proof of stake. Without getting into the details, these are essentially verification techniques used to prevent fraud before transactions are added to the blockchain.
What is Blockchain?
Blockchain is the record-keeping technology behind bitcoin. In its simplest form, blockchain is a database. It’s an open, distributed ledger that records transactions in code. To put it in perspective, imagine your checkbook as an Excel document but scattered across countless computers around the world.
Blockchain works by collecting information in groups that hold sets of information (blocks). When storage capacity of a block is met, it gets chained onto a previously filled block. This is what forms the chain of data known as “blockchain.”
This software logs each new transaction as it happens. Every copy of the blockchain is then updated simultaneously with the new information. This ensures that records are kept identical and accurate.
Should You Invest in Cryptocurrency?
Short answer...No. Unless you have money to play around with, don’t play around with cryptocurrency. To put it bluntly, cryptocurrency is volatile.
It’s at the very “high-risk” end of the investment spectrum. While there may be hype around cryptocurrency at the moment and people who have made millions through crypto investments, these “get rich quick schemes” seem too good to be true...because they are.
When it comes to building your wealth, there are plenty of better, safer, less-risky ways.
Why is Investing in Cryptocurrency Risky?
- Cryptocurrencies are volatile. The value of cryptocurrency goes through extreme ups and downs. Remember, there’s no central authority that manages its value.
- There are still a lot of unknowns about cryptocurrency. Only a handful of people in the world truly understand the system and how to operate it.
- Investing in cryptocurrency is a lot like gambling, there’s no proven rate of return. There’s no pattern to the rise and fall of its value, and it’s exchanged peer-to-peer without any regulatory standard.
For more information on how to build wealth, increase your financial security, and fund your retirement, reach out to the experts at Paradigm Financial Group Inc. at 610-422-3530.