There seem to be several camps of thought when it comes to investing in cryptocurrencies. The largest camp includes investment firms and investors who add certain “safer” cryptocurrencies to their portfolios after expending a minimal level of due diligence. For them, the choice to purchase and hold cryptocurrency is based on “FOMO,” fear of missing out, and a recognition (and willing acceptance) that the risk/reward determination behind the investment is similar to buying lottery tickets. Somebody will win, the logic goes; it might as well be me.
The other camps, the sizes of which are difficult to determine, have done sometimes extensive research and have concluded that cryptocurrencies are either:
- A Ponzi scheme dependent on a steady influx of greater fools,
- A foolproof way to get rich if you only stick with it, or
- The future of financial exchanges when crypto eventually replaces fiat currency, such as the U.S. dollar, which is backed by a centralized federal banking system. They think cryptocurrency will provide completely decentralized financial transactions that free investors from the currency manipulations of sovereign nations and wealthy oligarchs. They also believe crypto’s blockchain technology will revolutionize privacy and security in numerous uses, from medical records to voting records.
Just describing the basics of cryptocurrency requires a vocabulary that easily obfuscates its reality. Purveyors of crypto investing have been accused of dismissing valid inquiries as petty ignorance by the intellectually inferior. This article will address some of the promises and issues related to crypto so you can decide the most important question: Is crypto investing worth your time and money?
Understanding the basics
There are three ways to acquire cryptocurrency:
- After opening an online account, you can choose among a staggering number of cryptocurrencies to purchase through a brokered exchange. Your purchase and sale of the “coins” will look very similar to any other security, except that the market never closes and the price fluctuation is both highly volatile and completely untrustworthy.
- You can establish a “wallet” to hold crypto that you buy from someone else using one of many peer-to-peer online access points. This type of ownership carries much greater risks from price manipulation, scammers and a total lack of privacy (more on that later), but provides the free capitalist environment promised by an unregulated and decentralized exchange.
- Finally, you can create new coins for yourself by “mining” crypto.
Every unit of a cryptocurrency, the “coin,” is the product of a created “block” (and every coin consists of a million smaller digital units). The block is created when someone, a “miner,” applies a significant investment in a series of highly sophisticated …….