Cryptocurrency (crypto) is a decentralized digital currency. It is not insured, it is not backed by anything, and it is not regulated by any government. The value of crypto fluctuates like a stock, but it can be used in place of cash or credit as a form of payment. Among all of the different cryptocurrencies, Bitcoin and Etherium are the most well-established. Despite this, their value can still fluctuate significantly. Even though there are no guarantees when it comes to crypto, many people are starting to invest. It is starting to be seen as a part of a diverse investment portfolio. While acceptance for cryptocurrency has grown, consumers still need to be wary of the risks.
How to Buy and Sell Cryptocurrency
Most people obtain cryptocurrency through platforms like Coinbase. Crypto platforms allow you to buy and sell cryptocurrencies like Bitcoin, Etherium, and more. It is very easy to use cryptocurrency platforms, all you need to do is create an account and link your bank account. It is also possible to open a cryptocurrency wallet that is independent of trading platforms. These wallets are best for serious investors that really want to own their cryptocurrency independently.
It is good to invest in a few different cryptocurrencies, just like you want to keep a diverse traditional investment portfolio. Do your research and make sure you fully understand all of the risks and rewards that are involved. Be careful to keep your own notes on how much you spend on your cryptocurrency though. Some apps can make it difficult to see how much you are really up or down. Finally, always remember not to invest more money than you are comfortable losing.
Paying With Cryptocurrency
Some businesses are starting to accept cryptocurrency as payment. The Federal Trade Commission (FTC) wants people to know that paying with cryptocurrency is significantly different from using cash or credit. They point out that Crypto does not have legal protections like debit or credit cards. This means you won’t likely be able to dispute a transaction if you pay with cryptocurrency. Also, you won’t be able to get a refund unless the person you pay sends you back the payment. That means you are putting a lot of trust into the sellers you purchase from. Finally, some information about your transaction will be recorded on the blockchain. The blockchain is a public list of crypto transactions so your information will therefore also be public. This may or may not include identifying information depending on how your digital wallet is set up.
What Is Bitcoin Mining?
Miners are people who verify the legitimacy of Bitcoin transactions. They prevent the problem of “double-spending” that could occur if someone attempted to spend counterfeit Bitcoin. Miners qualify for compensation in the form of Bitcoin after verifying one megabyte of transactions. However, not everyone who verifies 1 MB of transactions will get paid out. They also need to be the first miner to have the right answer or the closest answer to a number problem that is called “proof of work.” By spreading out the responsibilities of transaction verification, Bitcoin is a decentralized currency. No single bank or authority regulates it.
Will Bitcoin Mining Ever End?
Mining Bitcoin is the only way to release new cryptocurrency into circulation. If Bitcoin mining was shut down, it would still be usable and continue to exist, but there would never be any additional currency created. Eventually, Bitcoin mining will come to a natural end. That is predicted to happen in the year 2140. At that time, miners will continue to verify transactions but they will be paid in fees instead of in new Bitcoins.
Cryptocurrency is not immune to scams. Just like the stock market, it is subject to pump and dump schemes. These scams create false hype to generate interest and investment. Then, the people running the scam dump their massive gains and leave the new investors with stocks or crypto of much lower value. One figure that has been particularly influencing cryptocurrency prices is Elon Musk (Tesla, SpaceX). Many annoyed crypto investors have noted that prices will fluctuate based on his tweets and his own actions. In May 2021 when Tesla said it would no longer accept Bitcoin, there were significant price drops. In July 2021, Musk began walking back that action and encouraging cryptocurrency investment again. Etherium prices even began to rise after he revealed that he owns some.
Key Points of Crypto Scams
- Don’t get caught up in the hype of particular celebrities and tycoons
- Don’t invest more than you can afford to lose
- Beware of stocks and crypto investments being popularized/hyped on social media and Reddit
- Stick to cryptocurrencies that have been around for a while and withstood some time
Should You Buy Cryptocurrency Now?
Your financial investments are a big responsibility. It is important to thoroughly research your options and speak with a financial advisor before making any hasty decisions. Some people have gotten very lucky investing in crypto because they bought when prices were low and sold when prices rose. There are also many people who have lost a lot of money in times where the value of crypto drops. The most important thing is to make decisions that you feel are right for your own personal situation. While you may feel some fear of missing out (FOMO), it is best to make investments that fit your long-term goals.
If you just like paying in crypto, you can easily keep just a little money in those funds. If you are planning a long-term investment strategy, it is better to take your time and work with a financial advisor that has a bigger picture of all investment options.