There are so many questions that are swirling regarding cryptocurrency, which in some ways leads to the construct of the theory, understanding of the concept, and how it can feel so intangible. It is our hope that by offering this insight, we can make the concept a bit more comprehensible.
Cryptocurrency started in 1983 by the American cryptographer David Chaum, who developed a process where secure money transactions could be made without third party interaction and by securing the confidentiality of these transactions. It evolved in 2009 to a decentralized domain name system by Satoshi Nakamoto, who came up with the formalized idea of cryptocurrency, bitcoin. The decentralized aspect of this idea is that there is not just one big central agency that commands the system, but there is distributed control amongst many entities. Cryptocurrencies operate without the involvement of banks, governments, or any middleman and can act like real money but in a digital form.
Is cryptocurrency for everyone? Anyone can use cryptocurrency depending on your jurisdiction or country’s laws. At this time, there are no formal regulations that dictate how or where bitcoin or cryptocurrency can be used. For instance, in 2018 The Reserve Bank of India removed the block from banks using cryptocurrency and now the use of cryptocurrency is thriving in India.
The first thing you need to ask yourself, are looking at this from a long-term or short-term approach? If you’re willing to hang in there for years, it could be considered an investment, but if you’re looking for quick overnight gains, then it’s more like you are gambling.
What is your strategy? The next thing to keep in mind is that there are always risks. You need to know the risks. If you’re putting your life savings into cryptocurrency, that may not be the most prudent thing to do. However, you can choose to take more calculated risks, which may be a safer route. Start with an amount that you are willing to part with that won’t blow up your entire financial situation or plan. If your existing portfolio is already well diversified and you add a portion of cryptocurrency to the mix and it doesn’t do well, it won’t drag your entire portfolio down. Have you ever heard of the term don’t put all your eggs in one basket? So be strategic, diversify, and be careful in order to mitigate your risk.
The first step is to generate an account on a cryptocurrency exchange and create a wallet, which is an online app that can hold your currency. This will allow you to transfer real money to buy cryptocurrencies, such as Bitcoin or Ethereum. The exchange is similar to finding a broker to buy stocks. Prices can vary, be unpredictable, and high-risk, so proceed with caution.
The most popular and most widely used crypto that many people have heard of is Bitcoin. While that is the name we hear most often, there are actually over 5,000 types of cryptocurrency. The more popular ones out there next to Bitcoin are Ethereum, Dogecoin, Litecoin, and Ripple, to name a few. Each cryptocurrency has different features. If you are planning to start investing in Bitcoin or another cryptocurrency, Coinbase is one of the largest exchange platforms to buy and sell Bitcoin and many other altcoins that you can check out. Most importantly, do your research and know what you’re getting involved in.
In summary, ask yourself what your goal and strategy is, do your research, be willing to be okay should you lose what you put in, and, most of all, be patient. While there are fascinating aspects to the world of crypto, remember that it is still a work in progress and there is even much debate on where it’s going in the future.
About the author: Summer Watson, PhD. & Ms Jen Fontanilla, Certified Financial Coach.
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