It seems like everywhere you turn, the word “cryptocurrency” comes up. It certainly has become popular in the last couple of years, but what exactly is it, and should you jump on the bandwagon and invest in some? In short, cryptocurrency, or crypto, is digital money that is secured by cryptography. This makes it almost impossible to counterfeit. It is also not issued or regulated by any central authority, so, in theory, it is immune to government interference. Crypto is distributed through blockchains which are ledgers that organize and ensure the integrity of the transactions. The term crypto refers to the algorithms that safeguard the entries made on the ledgers representing the digital “tokens,” which is how crypto is denominated.
Cryptocurrency is often criticized. Many think that they will damage the financial and legal industries. They have a negative reputation for several reasons. One is that they are often used for illegal activities. Other concerns include exchange rate volatility and the stability of the infrastructure, i.e., blockchains, underlying cryptocurrency—however, fans of crypto like how portable they are and inflation-resistant. Various techniques are used to make the token entries safe or encrypted, and they have very confusing names such as elliptical curve encryption, public-private key pairs, or hashing functions.
The first cryptocurrency to come out was Bitcoin which emerged in 2009, and it is still the most popular crypto out there. It is also the most valuable. Fast forward to March 2021, and now there are more than 18.6 million in bitcoin out there, worth about $927 billion. However, now there are many other kinds of crypto, including Litecoin, Namecoin, and Ethereum. The total worth of all the cryptocurrencies available is about $1.5 trillion. Bitcoin accounts for more than 60% of that.
Like any investment, cryptocurrency has its pros and cons. Let’s take a look at some of those now.
Pros and Cons of Cryptocurrency
- Crypto makes it easier to transfer money between people without a bank or credit card
- Crypto can be more secure than other currencies
- The transfers are secured or encrypted
- Processing fees are lower than that of banks
Crypto is used for illegal activity like tax evasion or money laundering because it is anonymous
- Market price for crypto is based solely on supply and demand and fluctuates a lot!
- Crypto is considered speculative and high risk
- Crypto is not representative of any tangible goods
- While the blockchains are secure other parts of the crypto-network aren’t protected and can be hacked.
In other words, if you are an upstanding citizen, you just have to worry about the volatility in crypto and a possible bubble, that’s all!
Cryptocurrency has been around since the development of Bitcoin in 2009. This currency is represented by digital tokens recorded on digital ledgers called blockchains that are considered secure. Crypto as an investment is regarded as a speculative and alternative investment and should be considered carefully and with the help of a financial advisor experienced in alternative investing.
1 Investopedia. Cryptocurrency Accessed May 10, 2021.