Cryptocurrency – What is it and Why Do I need to know about it?
January 20, 2020
Cryptocurrency is a word that you may hear thrown about all the time but why does it matter? Cryptocurrency, known also as virtual currency or digital currency, became a popular trending topic in 2017. Similar to real currency, cryptocurrencies allow owners to buy products. Much of the interest comes from speculators who trade them as unregulated currencies for profit driving prices skyward..
In 2017, according to Business Insider, cryptocurrencies raised more than $3.5 billion in initial coin offerings. As 2017 progressed, the demand kept increasing and increating. The ICO market remains red hot in 2018.
1. What is cryptocurrency?
As mentioned before, cryptocurrency, or often called tokens, is a form of payment that can be exchanged online for goods and services. A good comparison would be to think of them as casino chips. They are worth a certain amount and can be cashed in for goods and services
As of January 2018, about 1,400 cryptocurrencies were trading hands, and that number will increase significantly. They work using Blockchain, a decentralized technology spread across many computers that manages and records transactions.
2. How many are out there, and what are they worth?
As of January 2018, about 1,400 cryptocurrencies were trading hands, and they continue to proliferate, raising money through initial coin offerings. By the first week of December 2017, ICOs had raised $1.38 billion in the fourth quarter, on top of the third quarter’s $1.74 billion, according to research conducted by Token Report. And both dwarf the approximately $100 million ICO haul in 2016.
As of Jan. 5, 2018, the total value of all Bitcoins, the most popular digital currency, was pegged at $283 billion. The second-most popular, called Ripple, was valued at $119 billion. The total value of all cryptocurrencies is about $708 billion, according to Coin Market Cap.
3. Why are they so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Supporters view cryptocurrencies as the currency of the future, racing to buy them now before they become more widespread. Cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation.
Enthusiasts like the technology because it features a decentralized processing and recording system that is more secure than traditional payment systems. It also allows for anonymity which allows transactions outside government surveillance. Others like the anonymity which allows for transactions outside government surveillance.
4. Are they a good investment?
Ultimately, cryptocurrencies guarantee no cash flow, so to profit someone has to pay more for the currency than you did. This is a textbook perfect example of “the greater fool” theory of investment. When you contrast cryptocurrencies to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation, the differences are striking.
It should be noted that currency needs stability. Some experts are vocal that cryptocurrencies night not be safe. Warren Buffett compared bitcoin to paper checks: “It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?” CEO of megabank JPMorgan Chase, Jamie Dimon, called bitcoin a “fraud.”
For those who see these as the currencies of the future, it is important to remember that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency.
5. How do you buy cryptocurrency?
To obtain cryptocurrency — different companies issue them in different ways— users must exchange bitcoin. To buy either of these cryptocurrencies, you’ll need a “bitcoin wallet,” an online app that can hold your currency.
6. Are cryptocurrencies legal?
Currently outlawed by China, cryptocurrencies are leagan in the United States. Over the last few months, the SEC has been increasing its regulation of coin offerings and cryptocurrencies. Good news for investors becuase this will help to weed out fraud and protect investors.
7. How do you protect yourself?
If you’re looking to buy a cryptocurrency in an ICO, make sure to read the fine print in the company’s prospectus for this information:
Who owns the company?
Are there other major investors who are investing in it?
Will you own a stake in the company or just currency or tokens?
Is the currency already developed, or is the company looking to raise money to develop it?
But beyond those concerns, just having cryptocurrency exposes you to the risk of theft, as hackers try to penetrate the computer networks that maintain your assets.