Over the past few years, the ability to invest in cryptocurrency (crypto) has become more mainstream. Companies like Robinhood, Webull, Coinbase, and countless more have facilitated trading crypto. By making crypto readily available to the public, it allows consumers to invest allowing for equal opportunity to everyone.
With stories of people making millions off of Bitcoin, it is enough to make anyone consider buying crypto. Before one can start throwing money at investment options though, it is smart to understand what crypto is and how it works. Is it safe? What are the possible risks?
The most recognized form of crypto was released in 2008. Starting off as just a novelty, Bitcoin was relatively worthless. However, now a single Bitcoin is worth over $60,000 (prices fluctuate constantly). There are many forms of crypto. One thing that defines crypto is that they are a decentralized digital form of currency that is traded on the internet. Being a decentralized currency allows for it to be traded without a middleman, like a bank or payment processor; without a middleman, the value of the coin can be transferred globally and instantly with little to no fees. This makes transferring crypto more effective than international wire transfers.
One may ask: without the security of a bank or government to monitor and control the money, how it is safe and secure? Since crypto is not managed by a central authority like a government or a bank, the currency has to be regulated in a different way. The way this is done is by a technology known as blockchain.
Since crypto is run off a network of computers that utilize free open-source software, anyone can participate in being part of the network. A blockchain utilizes this network to create a balance sheet, very much like a traditional bank, that keeps track of every transaction. It is then verified by doing this, crypto is able to stay secure even without a controlling body. Without a controlling body, its consumers are truly in complete control of their money.
However, using crypto does bring some draw backs. Crypto is very volatile, meaning that the value of crypto can drop or rise at any given time. Therefore, the amount of crypto you buy now might not be worth that amount even a couple minutes down the line. This is what happened for a lot of people who purchased Bitcoin early on. People gained an immense amount of value on their Bitcoin as it popularized. The opposite can also happen as well.
Another disadvantage of crypto comes from the wallet. In order trade and use crypto to purchase things, a wallet is used. In order to use a wallet and for it to be secure, only the user and creator of the wallet can know the password. So, if the user loses the password, it is not possible to recover the value of whatever was stored in the digital wallet. The user must be careful to remember their password or to store it somewhere they can reference it later.
Another one of the biggest draw backs for common everyday users is the inability to reverse a transaction. Once the money is sent, there is no way to cancel the transaction. The lack of having a pending window makes for sending money faster and less processing fees, but makes your purchases immediate and therefore the user has to be more careful of who they are sending money to. The buyer can request for the seller to send the money back, however that would require the cooperation of the seller as well.
Investing in crypto is not for everyone. However, it is a great alternative to using traditional centralized money options like USD. Crypto is also a great investment option if you’re willing to risk losing some money along the way much like investing in stocks.
Before making any decision on something new, it is critical to invest some time on researching information and options before diving into the world of crypto.