There’s been a lot of buzz about cryptocurrency in the last few years as companies battle to be at the forefront of a new online payment system.
As of June 2020, there were over 5,500 different crypto currencies, with Bitcoin being the dominant player in the market.
In short, cryptocurrencies can both be a method of payment other than handing over a credit card number and can also be an investment vehicle (for good or bad because the value can change rapidly, depending on multiple factors).
We’ll break down some of the most common questions about cryptocurrency below and how it compares to standard fiat currency (government backed currency, like the U.S. dollar).
How Does Cryptocurrency Work? Is It Stable?
How Does Cryptocurrency Work?
In a way, you can think of cryptocurrency like poker chips when you go into a casino. You need to pay a certain amount of money to get a certain number of those poker chips. You can use them in place of money and then convert them back into real dollars later.
However, one big difference is that your casino chips are going to be the same value when you go to cash them back in at the end of the day. The same can’t always be said for cryptocurrency. Its value can change, which is what makes it risky, and also potentially lucrative for some.
Many people view cryptocurrency under the same parameters of what to look for when buying stock investments, because of the ability to gain and lose value against the dollar.
If you are purchasing goods and services and someone accepts a cryptocurrency, like Bitcoin, as payment, you can then use it as a payment method.
How Do You Buy Cryptocurrency?
You purchase cryptocurrency by signing up for an account at a site that trades Bitcoin or another type of cryptocurrency. You need to use a digital wallet application to store and use cryptocurrency. Many of the sites that sell it, will also offer a digital wallet application.
One of the most well-known sites for purchasing cryptocurrency is Coinbase. It supports Bitcoin, Ethereum, and Litecoin. You can find a link to that site and several others at The Balance.
Some of the things you want to look for in a reputable cryptocurrency dealer are:
- Insures deposits up to $250,000 against theft or breach
- Allows you to transfer your balance to other storage applications
- That the site works for cryptocurrency trading in your state
- Unlimited ability to sell your cryptocurrency
How Much Does the Value of Cryptocurrency Fluctuate?
The risk in dealing with cryptocurrency is that its value is unpredictable and can fluctuate quite a bit.
As an example, here are some recent fluctuations of Bitcoin over the last few weeks:
- As of Jan. 8, 2021: 1 Bitcoin = $41,026.60
- As of Jan. 1, 2021: 1 Bitcoin = $29,388.30
- As of Dec. 21, 2021: 1 Bitcoin = $22,729.40
- As of Dec. 15, 2021: 1 Bitcoin = $19,452.50
As you can see, the value has more than doubled in the last three weeks, however it can just as easily go in the opposite direction.
Why Do People Use Cryptocurrency?
There are a number of reasons that investors are interested in cryptocurrency and see it as the currency of the future.
One reason is that it works outside the central banking systems, so is not impacted in the same way due to things like inflation.
Security is another reason. Some people see it as a safer way to shop online because it’s known as a blockchain system. This means that a transaction can be traced from source to source with a record of currency transfer through all steps of a transaction.
Other’s buy cryptocurrency strictly as an investment vehicle like they would a stock or mutual fund.
What’s the Risk with Cryptocurrency Investment?
One of the big risks with investing in cryptocurrency over an investment in a company like Apple or Facebook is that there is no good or service behind the valuation.
For the value to go up, there has to be market demand for the currency. You can’t sell your Bitcoin unless someone wants to buy it.
The value can go up and down rapidly, making it one of the riskiest investments currently out there. Some trading platforms don’t even support it due to this reason.
As an example, between December 2017 and December 2018, the value of Bitcoin went from $20,000 to just $3,200.
How Secure Are Your Devices?
Not all mobile wallet apps are legitimate. Some can contain spyware or banking trojans. Two River Computer’s expert team can do a thorough scan of all your devices for any malware.
Contact us today to schedule a consultation. Call 732-747-0020 or reach us online.