Cryptocurrency had a groundswell of popularity as a part of the cultural conversation about our rapidly shifting digital era a few years ago, and continues to be a topic of conversation today. Perceptions of cryptocurrency vary: the rise of the so-called “self-made billionaires” who were early investors in cryptocurrency like Bitcoin had some proclaiming that this new form of digital finance was the currency of the future, while others view it as nothing more than a fad.
Even more people have just been left scratching their heads trying to understand what, exactly, cryptocurrency is, and why it seemingly out of nowhere became such a hot topic. We’ve dug through some of the information available and come out on the other side with a bit of knowledge on the topic, so let’s take a look at the fundamental basics of cryptocurrency.
What is Cryptocurrency?
Cryptocurrency is a type of digital currency. Often distributed as digital “tokens” that can be exchanged online for goods and services. They differ from conventional currency that you draw from your bank account to pay for online purchases in a few ways, first because it is purely digital, and for a few other reasons--two prominent ones being their assessed value and their level of privacy and security.
How Cryptocurrency Works
Cryptocurrency functions in many ways like a company stock. To further illustrate this, let’s take a look at the current value of the most popular form of cryptocurrency to date, Bitcoin. 1 Bitcoin today is worth about $7,400 in US dollars; if you were to purchase a good or service for $925 it would cost roughly 1/8th of a bitcoin.
However this can change rapidly; in fact it already has. 1 Bitcoin could in theory be worth $10,000 next week, or it could be worth $40 if the currency crashed massively. Bitcoin peaked in late 2017, when 1 worth $20,000, but since then it has dropped in value. They can be very lucrative but also very financially dangerous--much like any stock.
Why Cryptocurrency Is Popular
Advocates of cryptocurrency often give a number of reasons that they prefer it to the more traditional forms of hard currency. Some of the addressed reasons for its popularity include:
- Security: Cryptocurrencies are protected through a method called blockchain, which is described as, “a distributed, decentralized public ledger” that allows for very secure transactions --and also gives the buyer the opportunity to be anonymous. Explaining blockchain itself is an entirely different can of worms, but if you’d like to learn more investopedia has a comprehensive explanation of blockchain that you can read here.
- Potential: Because it is relatively new and has become a part of the public consciousness it also has significant perceived potential. For those who think that cryptocurrency will be the currency of the future, investing in it now, at a relatively early stage could in theory pay huge dividends in the future. Although confidence in cryptocurrencies has certainly seen its ups and downs. This has caused value to fluctuate fairly regularly. The possibility of huge financial upside has kept them popular and led to massive growth considering modest beginnings.
Is Cryptocurrency a Smart Investment?
Like investing your money in any up and coming stock, it’s hard to say if investing in a cryptocurrency is a smart choice--but it is certainly a risky one. On top of that, the actual utility of cryptocurrencies on a day to day basis is much like a stock; in other words, you can’t really spend it conventionally like you can the money in a checking account, because many retailers and service providers don’t actually accept cryptocurrency as payment.
A safer bet when it comes to investing your money is through conventional, established means, like money market and other high-yield savings accounts. These are more long-term investments, but they do have guaranteed returns that you can rely on--and at HRCCU we offer a number of these types of accounts! To view our rates and account options, visit our high yield investments page.