Cryptocurrency is a digital currency that uses encryption to verify transactions (huh..?). Traditional currency is a physical object of some sort (think coins, paper money, etc.); whereas digital currency is a digital coin. Think of it as a peer-to-peer investing network but all transactions can be viewed by everyone.
There are almost 1,000 cryptocurrencies available. Examples of cryptocurrencies include popular ones like Bitcoin and Ethereum.
The thing to know about cryptocurrencies is that they’re extremely volatile and speculative and if you don’t understand what you’re doing you can lose a lot of money. I’ll do a follow-up post that dives into cryptocurrency basics but today, I’ll address one of the most common questions I see, should I invest in cryptocurrency?
The answer to that question is, it depends? How much do you know about cryptocurrency? If you’re a complete novice, familiarize yourself with the types of cryptocurrencies (here’s a good read about Bitcoin) and determine if you’re comfortable with the amount of risk involved.
For example, in June of this year, Ethereum crashed and the price dropped from $319 to 10 cents in mere seconds. Imagine if you had put in large sums of money, the drop would’ve put you in a very tough spot causing you thousands of dollars assuming your portfolio was worth that much.
One of my husband’s mentees put a large sum of money in Ethereum a while back and I’ll tell you the same piece of advice I gave him when he shared that he held large amounts of Ethereum. If the value of your investment goes up so much that you not only make back your principal but more, make sure you withdraw the amount you put in but before you even start investing, the money you invest, just like with any other investment SHOULD NOT BE MONEY YOU NEED (say that to yourself over and over). The last thing you want is to put money in an investment only to realize shortly after that you need the money for necessities.
So if you’ve been thinking about investing in cryptocurrency make sure you do your homework first (like with any investment) and do your research because unlike most investments, there’s no governing authority that regulates cryptocurrency so if you’re defrauded you have no recourse.
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