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Cryptocurrency: it’s all the rage. But what is it? And should you invest? From Yahoo! Finance, Garrett Baldwin sheds some light on this current currency.
Is Cryptocurrency Considered an Investment?
With all the buzz Bitcoin and other cryptos have been generating lately, you might be surprised to learn that, as of 2019, only 6.2% of Americans own bitcoin, while another 7.2% revealed plans to buy some, according to a study from Crypto Radar.
If it’s not widely accepted as currency, that puts crypto firmly in the category of investment. And, in fact, major banks are looking to classify Bitcoin as a separate asset class.
But for everyday people and retail investors, all the publicity surrounding Bitcoin can only make cryptocurrency even more confusing to understand.
What Is Cryptocurrency?
Cryptocurrencies are digital assets used to verify the transfer of funds and to secure information without a third-party intermediary. They function on a decentralized ledger called a blockchain — think of it as a digital transaction log — with special encryption techniques to protect privacy and expedite transactions.
Benefits and Risks of Investing in Cryptocurrency
Cryptocurrency provides investors with some benefits they can’t receive from buying equities on the stock market.
- Blockchain projects grow to be more commonly used for everything from e-commerce payments to traditional banking, the value of crypto will grow.
- Crypto is already convenient to own and transfer between parties.
- Transactions are also anonymous and highly transparent, which many people prefer when it comes to dealing with purchases.
But several risks exist that investors must tolerate when dealing with cryptocurrencies like Bitcoin.
- Crypto has experienced volatility and wild price swings in recent years.
- Because the currency is 100% virtual — there’s no physical option — and is not backed by any centralized government or central bank, it’s is susceptible to cyber theft.
- Accounts are not guaranteed by the Federal Deposit Insurance Corporation like the U.S. dollar is by banks.
It’s important to note that many cryptocurrency projects have been fraudulent or failed in recent years. It’s important to research carefully before investing. Certain projects are subject to failure due to a lack of investor confidence.