What’s the Deal With Cryptocurrency?

Cryptocurrency. What is it and why is everyone talking about it? In today’s post, we’re going to discuss why cryptocurrency is all the rage these days and whether or not this is a good thing.

Let’s dive in!

What is Cryptocurrency?

Cryptocurrency is a form of digital currency that can be exchanged online for goods and services. Since cryptocurrency is secured by cryptography, it’s nearly impossible to counterfeit. Cryptocurrencies are generally not issued by central authorities, so they also can’t be easily interfered with or manipulated by the government. Another major component of cyptocurrencies are blockchains, which is a type of technology used to ensure the integrity and security of transactional data.

In short, cryptocurrency is digital money. Virtual tokens make up the currency portion while “crypto” refers to the encryption algorithms and cryptography used to safeguard these payments.

Types of Cryptocurrency

The first and most popular blockchain-based cryptocurrency was Bitcoin. Today, there are thousands of cryptocurrencies, some of which include Litecoin, Peercoin, Namecoin, Ethereum, and Dogecoin. Bitcoin’s initial success spawned many of these new cryptocurrencies, although they’re not all identical to Bitcoin.

Why is Everyone Talking About Cryptocurrency?

From news outlets and social media to celebrities and even your neighbor across the street, it seems like everyone is talking about cryptocurrency these days. The fast growth and success of cryptocurrency and the growing accompaniment of supporting products and services has created a major buzz. The more people talk about Bitcoin, Ethereum, or Dogecoin, the more people start to listen and take this stuff seriously. Today, people are rushing to invest in cryptocurrencies.

Here are a few reasons why cryptocurrencies appeal to their supporters:

  • People see cryptocurrencies as the currency of the future – which is why they’re racing to buy them, presumable before they grow in value.
  • Central banks have no part in the management of cryptocurrencies – this is appealing since banks are known to reduce the value of money due to inflation.
  • Many supporters like the decentralized technology behind cryptocurrences – this type of technology is believed to be more secure than traditional payment systems.

Even with their growing popularity, many are left wondering whether cryptocurrencies are actually a good investment?

Cryptocurrencies may go up in value, but it’s all speculative. Just like real currencies, cryptocurrencies do not generate cash flow, so the only way for you to profit is if someone pays more for the currency than you did.

Cryptocurrency is used to transmit money, which doesn’t inherently make it more valuable. Legendary investor, Warren Buffet, has compared cryptocurrencies to paper checks. Checks may be an effective way of transmitting money, but that doesn’t mean they’re worth more money.

Another consideration is that cryptocurrencies lack stability. The only reason their value goes up is because people are willing to pay more for them. There’s no stable growth as compared to a well-managed business in the stock market; established businesses increase their value over time by growing cash flow and profitability.

The price volatility of cryptocurrencies make them a risky investment. If there’s potential for them to be worth three times the value in a year, why spend them? The lack of spending and circulating cryptocurrencies makes them less viable as an actual currency.

Because of the incredibly speculative and volatile nature of cryptocurrencies, you may consider investing in established companies with much less risk. On the other hand, if you see legitimate potential in cryptocurrencies along with the millions of others who do, you may find that with great risk comes great reward.

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