If you have been tuning to news media outlets lately, then you’ve heard about cryptocurrency. If you haven’t, then you almost certainly have heard about Bitcoin. Bitcoin is a type of cryptocurrency.
In this article, we are going to cover the basics of cryptocurrency and why you might want to invest in it.
What Is Cryptocurrency?
Cryptocurrency is just like traditional money in use today. However, it’s in a digital form, decentralized and largely based on cryptography. It’s pretty well accepted that the first decentralized cryptocurrency was Bitcoin.
Bitcoin was started in 2008 and went online by 2009. The man who was credited with its invention is Satoshi Nakamoto.
Here’s an interesting tidbit of information.
Satoshi Nakamoto is like a pen name or avatar. To this day, no one really knows the man behind the mysterious name.
From its inception, Bitcoin continued to gain a lot of traction because it solves a number of problems that are inherent to the traditional monetary system.
What Is Its Purpose?
Cryptocurrency was invented to solve two major problems – security threats and protection of privacy.
Let’s first discuss the security threat.
Cryptocurrency runs on an entirely different platform and is decentralized whereas the traditional monetary system is centralized. That means that the users are keeping tabs on the system, also known as the “public ledger.”
This is more secure than the traditional system. Why? If you want to manipulate or “hack” a cryptocurrency, you will need to hack every node at exactly the same time. Keep in mind that a single cryptocurrency has thousands and even millions of nodes.
The traditional monetary system is easier to manipulate, or hack, compared to a decentralized system. There’s only one node (or in this case, the central banks) to infiltrate and manipulate.
Cryptocurrencies are gaining a lot of popularity as it’s a currency created for users and tracked by users.
Anonymity. While cryptocurrency is sometimes linked to “illegal transactions,” it is certainly not its purpose. The main objective of cryptocurrency is to protect your right to privacy.
The creators of Bitcoin believed in individual liberties and free markets. They believe that the government has no right in your business or how you spend your money. Accordingly, the government should not keep any records of your monetary transactions nor should they regulate markets.
Let’s return to the practical side of things.
Does Cryptocurrency Have Value?
The short answer is yes. However, keep in mind that “value” is largely determined by supply and demand. One way of grasping this idea is to think about real estate.
Imagine that you own an ultra-luxurious property. When you add the money you spent on the land, the house and the amenities, the total cost is $10 million.
Let’s assume that there’s an economic crisis. The demand for that property severely declines. Your property may be worth $10 million, but will you be able to sell it for that price? Most likely the answer is no because there simply is no demand for it.
If you drop the price to $5 million, it’s much more likely that someone will purchase the property. The buyer might be speculating that the demand will go up once said financial crisis is over.
When you close the deal for $5 million, that becomes the current value of your property. $10 million in valuation has just become $5 million because the market dictates.
How is this relevant to the value of cryptocurrency?
Critics claim that cryptocurrencies are going to fail because there is no “real value” backing it up. Not true! As in the real estate example, value is not determined by the total cost to build it but by the demand for it.
As cryptocurrencies continue to gain wide spread acceptance, its demand will only continue to surge. Thus, the value of it will also continue to ascend.
Why Would You Invest In It?
It represents a huge opportunity. The cutting edge business or revolutionary idea, progresses from inception and concluding with maturity or rejection. That said, cryptocurrency happens to be in its infancy stage.
There is a long way to go before reaching maturity, global acceptance and usage. Look at cryptocurrency now, more online stores are accepting Bitcoin as payment for products and services.
Since maturity stage is global acceptance, cryptocurrency has plenty of space for growth. Invest now and imagine your ROI as it reaches the maturity stage.
That said, here’s a word of caution.
We certainly do not claim that cryptocurrency is a “sure thing.” There is no such thing as a “sure thing.” This is simply about probabilities and your level of risk tolerance.
Inherent risks exist when it comes to cryptocurrency. It may not gain global acceptance for example. Notwithstanding, the potential gain is something that just can’t be ignored.
The smart way to look at cryptocurrency is to treat it as a high-risk, high-reward investment. Only invest money that you can afford to lose.