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Cryptocurrency: What It Is and Should Someone Invest In It?

Ever heard of Bitcoin, Dogecoin, Litecoin, XRP or Ethereum? They’re actually types of cryptocurrencies (aka digital money). And they’re trending everywhere you look. 

Cryptocurrencies let you buy goods and services, use apps and games or trade them for profit. But here’s the million-dollar question: Should you invest in cryptocurrency? 

Let’s unpack what in the world crypto is first.


What Is Cryptocurrency

Cryptocurrencies are digital assets people use as investments and for online purchases. You exchange real currency, like dollars, to buy “coins” or “tokens” of a certain kind of cryptocurrency and is stored in digital wallets. Much of the interest in cryptocurrencies is to trade for profit, with speculators at times driving prices skyward.

How Does Cryptocurrency Work

Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. If you own cryptocurrency, you don’t own anything tangible. What you own is a key that allows you to move a record or a unit of measure from one person to another without a trusted third party. Cryptocurrency is exchanged person-to-person on the Web without a middleman, like a bank or government.

How Does Someone Earn Cryptocurrency

There are basically two ways someone can get their hands on cryptocurrency: They can buy it, or they can “mine” for it.

In the crypto world, mining happens when people use their computers to solve super complicated math problems that make sure new crypto transactions are correct. Then, those transactions get added to the blockchain. As a reward for making sure a purchase made with crypto is legit, these people mining are then paid in cryptocurrency.

Is It A Safe Investment

Listen, you can try your hand at cryptocurrency if you want to. If you have some money you’re willing to lose, knock yourself out. Plain and simple—investing in cryptocurrency is not a good way to build wealth for your future.

Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency. It is possible to get filthy rich by investing in cryptocurrency -- but it is also very possible that you lose all of your money. Before you buy and sell digital currency, know the risks so you can judge if investing in it is a good idea for you and your personal finances.

4 Things to Know Before Investing in Crypto

Before you say goodbye to your dollars and hello to Bitcoin, Ether or Doge, there are a few things you need to know up front. Multiple factors show that cryptocurrency is not always a safe investment.
 
   1. Cryptocurrency exchanges are vulnerable to cyberattacks. Security breaches have led to sizable losses for investors who have had their digital currencies stolen, spurring many exchanges and third-party insurers to begin offering protection against hacks.
 
   2. There's also no guarantee that a crypto project you invest in will succeed. Competition is fierce among thousands of blockchain projects, and many projects are no more than scams. Only a small percentage of cryptocurrency projects will ultimately flourish.

   3. Regulators may also crack down on the entire crypto industry, especially if governments view cryptocurrencies as a threat rather than an innovative technology.

   4. Products based on cutting-edge technologies have innate volatilities. Extreme volatility is a defining factor of cryptocurrency. While you may make high returns, you could also lose everything.

If you want to invest in cryptocurrency check out my crypto-checklist:

- Know what you are putting your money into – research first.
- See what value does one cryptocurrency brings into the world.
- Do it based on the facts, not the hype – and there is a lot of hype.
- Only invest what you can afford to lose.

All the while, other signs are emerging that cryptocurrency is here to stay. It's never too late!

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