Please note: This article is intended strictly for educational purposes only and is not a recommendation for or against cryptocurrency.
Have you been wondering about cryptocurrency and whether or not it’s a good investment? Bitcoin’s value hit an all-time high this year. This may have you debating whether or not you should hop on the cryptocurrency bandwagon. You could become rich by investing in it. You could also lose it all. Read on to find out more about cryptocurrency, and whether or not it might be a good investment for you.
What is cryptocurrency?
Cryptocurrency is a relatively new concept. It is digital, non-physical money that is handled completely over the internet. This is done through complex computing and coding. With cryptocurrency, there are no bills to print or coins to make.
Cryptocurrency arose out of a commitment to decentralization. It is almost always is designed to be free of government control. In a way, this decentralization makes it more trustworthy. In other ways, it also makes it more risky. Like gold, cryptocurrency is worth what people are willing to pay for it.
Types of currency
You probably have heard of Bitcoin, the original digital currency. In 2008, Satoshi Nakamoto introduced the idea of Bitcoin. In early 2009, the first bitcoin was released. Since then, people have been modifying the way the code works and creating new types of cryptocurrency. Some of the more common types are Ethereum, Litecoin, Tether, Ripple, and Bitcoin Cash (which is separate from Bitcoin).
There are over 4,000 types of digital currency presently in existence. Collectively, any digital currency other than Bitcoin is referred to as an altcoin. Some of these altcoins have quite impressive features. However, the security level of Bitcoin’s networks has yet to be seen by an altcoin. All cryptocurrency has a high volatility. Still, the more common ones like Bitcoin and Ethereum have a track record of increasing value over time. Lesser-known cryptos are much less predictable.
More about Bitcoin
Since Bitcoin is the original and most common form of cryptocurrency, we’re going to discuss it in a little more detail. How exactly does Bitcoin work? As we previously mentioned, Bitcoin is decentralized. This means that it is not regulated by any bank or tied to any country. When Bitcoin was created, the supply was limited to 21 million coins. Not all of these coins have been released yet. In fact, the last bitcoin won’t be mined until sometime in 2140.
Mining is the process that releases bitcoins into use. Miners do this by solving a numeric problem and verifying transactions. While verifying transactions is a matter of effort, solving the numeric problem is more or less a matter of luck. Mining is costly, arduous, and only sometimes rewarding. When they are successful, miners are paid for their services in bitcoin.
Both mining and trading are handled anonymously. This means that cybercrime, such as phishing and blackmail schemes, can in many ways be easier in cryptocurrency than in physical currency.
In July 2010, a bitcoin was worth just 8 cents. Since then, it has notably risen. It has also crashed a few times. In April of 2021, the value hit an all-time high of over $63,000 per bitcoin.
In order to purchase bitcoin, you need a digital currency account like Coinbase, Litecoin, CEO.IO, or Kraken. Even Paypal will allow you to buy, hold, and sell bitcoins. It’s surprisingly simple.
Is cryptocurrency a good investment?
You may think that the significant rise of a bitcoin’s value makes it a great investment. This, however, is not always the case. Keep in mind that through the years, the value of a bitcoin has also crashed more than once. Cryptocurrency is extremely volatile and risky. Whether or not you will come out ahead completely depends on your timing. Crashes can be difficult to predict. Even if you stay invested for years, you may or may not grow your investment.
If you do decide to invest, start with small amounts of money that you can afford to “throw away”. Investing in cryptocurrency is more of a gamble than a dependable investment. Stay with the bigger, more established coins at first, rather than the newer coins. Be sure to educate yourself on the risks. Some of these can include cyber security, exchanges, and price volatility.
If you want to invest with less risk, you can consider buying stock in a trading company. Some of these options include Coinbase, PayPal, and Square. Of course, being part of the crypto investment world is still a risk, but this option is probably a little bit safer. The downside is that the safer option of stock investment doesn’t offer as much reward if cryptocurrency continues to increase in value.
We want to help you make informed investment decisions.
At Milestone Wealth Management, we want you to feel prepared for every aspect of your financial journey. Please keep in mind that the information in this post is not financial advice.
We exist to help you with your financial questions and set you on a path to a confident, successful future. Contact us today to set up an appointment. We’ll help you get a plan in place for your family and future.
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.