Have you been hearing words like cryptocurrency and Bitcoin recently or seen others talking about investments in online currency? At Trajan Wealth, we have the lowdown on what cryptocurrency is and how it may (or may not) help you achieve your financial goals.
What is Cryptocurrency?
As the name implies, cryptocurrency is digital money. The “crypto” prefix refers to the word “encryption,” which refers to technology that keeps data private and secure.
Cryptocurrency exists on a network of computers. Unlike regular currency issued by governments, it’s created by companies, so there are many different options at varying levels of security and anonymity. In fact, currently, there are over 10,000 cryptocurrencies, with a total value in the billions – sometimes trillions – of dollars.
How Does Cryptocurrency Work?
On one hand, cryptocurrency is a bit like casino chips. It’s issued by companies, so you exchange real money to get cryptocurrency in the form of digital “tokens,” which you can then use to acquire goods or services from that company.
In another sense, this digital currency operates like the stock market. You can buy, sell, or trade the tokens, and if their value goes up or down, you can sell at a profit or loss.
What is Bitcoin?
Bitcoin was the first cryptocurrency to use blockchain technology, which is a record of transactions that exists across a network of computers. According to Investopedia, this makes fraud nearly impossible. Bitcoin is still the most popular and most valuable cryptocurrency.
Why are Cryptocurrencies So Popular?
People use cryptocurrency for a variety of reasons:
- Some people see it as the money of the future. They want it now, before it increases in value. Others, who don’t care as much about its long-term viability, simply see it as an investment to buy low and sell high.
- Some like the security. Most cryptocurrencies use blockchain, and this makes them more secure than traditional payment options.
- Some just don’t like banks or government-issued currency. This digital alternative is seen as imperturbable, unswayed by inflation or governmental whims.
Are There Downsides to Cryptocurrency?
There are several potential downsides:
- Where there’s money, there are hackers. The exchanges where people buy and sell tokens and the wallet apps where people keep their money are susceptible to hacking. In fact, some cryptocurrencies have lost millions of dollars this way.
- This digital currency is extremely volatile. Take the major swings of Bitcoin’s value: while it traded at around $20,000 in December 2017 it was down to $3,200 only a year later. But, only two years after that, it was trading high again.
Should I Purchase Cryptocurrency?
Like every financial choice, this is a personal decision. Thinking of purchasing cryptocurrency? Trajan Wealth can help you navigate the risks and potential, the various kinds of cryptocurrencies available, and alternative investments that could achieve the same goals with less risk. Contact us today to develop a wealth management plan that reflects your values!