Is cryptocurrency a good investment?

Short answer: no one knows, so be careful.

What is cryptocurrency?

It’s a form of money represented by a very long string of numbers that are calculated using sophisticated computations.  The numbers represent a “coin”.  The biggest cryptocurrency today is Bitcoin.

You can purchase a Bitcoin with real money, like the cash in your wallet. As of today, Bitcoins trade for about $6,500 per “coin”.  If you cannot afford $6,500, you can purchase a part of a coin for however much money you have.

One interesting feature of cryptocurrency is that all transactions are public information. Your name is not shown in the public ledger, but the amount, date, and account numbers are saved for anyone to view. These public ledgers are saved across many computers across the internet.

How do you invest in cryptocurrency?

You buy it, wait for it to go up in value, and sell it.
Buy low.
Sell high.

Several years ago, you could purchase Bitcoins for pennies.  Recently they hit a high of over $20,000 per coin.  If you had purchased these coins when they were pennies, you could easily be a multi-millionaire. Some people genuinely became rich.

So that kinda sounds like a good investment.
What’s the catch?

Well, if you bought at $20,000 your money would now be worth $6,500.
You would have lost quite a lot as well if you were unlucky.

Bitcoin could theoretically go to $1,000,000 per coin (or more).
Or it could return to pennies.

No one knows what will happen.  It depends on if Bitcoin becomes trusted and used around the world for more and more financial transactions.

There are some risks to be aware of:

  1. a different cryptocurrency could become the standard; do you invest in Bitcoin? Ether? Ripple? one of a hundred others?
  2. in the future, cryptocurrencies may get hacked and billions of dollars could be stolen overnight; then what? (this has happened already)
  3. people may decide not to trust cryptocurrency; trust gives currency its value (without trust, our paper money is just… well, paper!… see: Confederate money)
  4. governments could easily outlaw cryptocurrency or create their own cryptocurrency to compete with the one you invest in

And what are you investing in?
A company that produces income?  No.
Something tangible that you can sell later? No.
A valuable natural resource that will be needed in the future? No.

You are investing in an idea.

You are betting that trust will build in cryptocurrency and that the cryptocurrency you decide to invest in will become more and more popular.

Will that happen? No one knows.

If you do decided to invest, know your risks.
Know that it’s not a “sure thing”.
It is a gamble.

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