Cryptocurrency- Is It Worth Your Time and Attention?
October 22, 2021
If you’ve watched the news or stepped outside lately, you’ve probably heard of cryptocurrency (or more likely, Bitcoin, which is essentially the “Kleenex” of cryptocurrency). This digital transaction system has a lot of people speculating—“Is this the next big thing? Do I need to get in on the ground floor? Am I missing out on major opportunities if I don’t?”
If you’re curious about cryptocurrency, here’s what you need to know:
What is Cryptocurrency?
Cryptocurrency has been dubbed the “Web 3.0” because not only is it a novel form of payment, but it provides a decentralized ledger for transactions—meaning there’s no governing body controlling the system. Instead, cryptocurrencies like Bitcoin and Ethereum use what’s called the blockchain network to verify transactions. Each time cryptocurrency is sent from one person to another, that transaction is reviewed by miners—participants who solve complex math problems to verify transactions and are then compensated with a fraction of the transaction. This third-party ledger is something everyone can monitor—unlike U.S. currency, where banks or governing bodies regulate transactions.
What Does the Blockchain Network Mean for Future Transactions?
This revolutionary ledger system has encouraged companies (and as of September, an entire country) to leverage cryptocurrency as an acceptable—and even preferred—form of payment. One of the advantages is that the blockchain network allows people to mathematically verify ownership of intangible goods like digital artwork. Consequently, some think this system will revolutionize the way we exchange other property in the future.
Should I Invest in Cryptocurrency?
It’s an intriguing question—after all, just in the last year, Bitcoin increased in value by 384 percent. But the same currency was valued at $20k per coin in 2017 before it dropped to $7k in 2019, then to $5k in March of 2020. Today, it sits at $55k, and this volatile fluctuation is exactly why we don’t advise putting all your eggs in the cryptocurrency basket. The same goes for any volatile asset class, be it Bitcoin, Apple stock, Google, or gold. It’s tempting to make substantial investments based on hype, but that can hurt you in the long run.
The Bottom Line
If you feel you need to get in on the ground floor of this rapidly evolving industry, do so prudently. Don’t invest more than three to five percent of your assets in digital currencies and diversify the investments you make. Investing in any asset class at an early stage involves risk, and while there’s likely a future for cryptocurrency, it’s still too early to determine its long-term impact, be it positive or negative.
If you’re worried about missing out on a major opportunity by not investing early, remember this—you might forgo the hyper-growth stage, but that doesn’t mean your overall portfolio will suffer—it might actually save you from unnecessary losses. Keep playing the long game, and you’ll be glad you did.