Hey everyone, Bridget from Money After Graduation here to explain cryptocurrency in three minutes. Before you get started investing in cryptocurrency, there are a few things that you need to know. The first is that cryptocurrency is entirely a digital money. There are no coins, there are no paper, there is no underlying asset backing it up.
When talking cryptocurrency you’ve probably also heard the word blockchain and are maybe wondering what that means. Blockchain is at the heart of what
cryptocurrency is. Essentially it is blocks of information that are attached to each other along a chain and that’s what makes up this digital money itself. If
this sounds confusing it’s important to understand that this is where it really gets its power.
When you go to a bank or you buy something from a store they have to record that transaction in a ledger. Most of these ledgers are digital now but they used to be like pen and paper and that’s how they kept track of the transfer and exchange of money. With cryptocurrency, that ledger is actually part of the currency. That’s what the blockchain is.
Every time a transaction happens the information of that transaction gets linked as a block of information in the chain. To understand why this is so valuable it’s because it makes cryptocurrency super safe. There’s no possible way to commit fraud because all the information is part of the actual coin. Cryptocurrency is totally unregulated. It’s not governed by any bank, government, country or governing body.
In North America we enjoy a lot of currency and political stability but other countries around the world facing large political and monetary upheavals can’t rely on their local currency to protect their wealth.
Cryptocurrency is a great way for them to protect their assets by storing it outside their country’s money. Finally the major benefit of this technology is anonymity. Because all the information of each transaction is held within cryptocurrency itself, it’s not like using a credit card that leaves a record and a paper trail of your information. For a lot of cryptocurrency transactions this meant that it’s been used for some morally questionable things, including the illegal weapons trade or the drug trade.
But for many other people it’s just a way of protecting their privacy. One of the major risks of cryptocurrency is that it’s super volatile. Something can’t behave like a currency if it can’t be reliably exchanged for things of value. If you’re cool with watching your investment go up and down by 20% or more in a single day then you can probably handle investing in cryptocurrency. But if watching your dollars disappear on your dashboard ever makes you a little nervous you might want to stay out until things calm down. Because cryptocurrency is not insured by any bank or governing body, if it’s ever stolen or lost it’s gone forever.
The last thing is we don’t know which coin if any of the current ones are going to be the ones most useful in the future. Bitcoin is getting all press but it’s definitely not the only one and when compared to others it might not even be the best one.