Cryptocurrency is a new digital form of money that has both advantages and disadvantages.

What to Know About Cryptocurrency

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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!

© 2024 Trajan® Wealth LLC. Nothing in this blog is intended as investment advice, nor is it an offer to buy or sell any security. Please consult your financial advisor for questions about your personal financial situation. All investments involve risk, including the potential for loss. Trajan Wealth clients and employees may have a position in any of the securities mentioned. Portfolio holdings and other data are subject to change at any time and without notice. Additionally, the above links provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. These materials are for informational and educational purposes and are not designed, nor intended, to apply to any person’s individual circumstances. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Please consult with your legal and/or tax advisor before making any tax-related decisions.

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