What is Cryptocurrency?

This article is part of the investing basics series from InvestingHero.ch

Before we get into this, a word of warning. Cryptocurrency is extremely volatile.

Possibly, one of the riskiest types of ‘investments’ you could make.

As in, ‘commenting on the attractivness of another female in front of your wife’ type risky. You have no idea which way that will go, but the chances are it’ll be down for the rest of the day. And pretty freaking volatile for the remainder of the week.

Risky. You get the idea.

Many would argue that cryptocurrencies are not an investment, but a speculation.

Speculation is a fancy word for gambling. And gambling is not investing.

For example, in 2017 the price of Bitcoin (the original gangster of crypto) went from $900 a coin to over $20,000 — a gain of over 1300% in under 12mths, before spectacularly crashing and returning a miserable negative return of -75% in 2018.

Let those numbers soak in a little.

While interesting to learn about, exercise extreme caution with crypto as an investment vehicle, and be very sceptical of anyone pushing such products, tokens or initial coin offerings (aka ICO’s) on the promise of generating favourable returns.

By all means, have a play with cryptocurrencies with some beer money. But for your long-term investment strategy, stick to the boring stuff.

Related reading: ‘How to create a simple budget plan to kick start investing‘

So, what is cryptocurrency?

Put simply, cryptocurrency (or crypto for short) is digital money. An extremely secure and decentralised version of money.

There are no physical coins or printed notes, it isn’t linked to a single country, and there is no central party, like a bank or government, controlling its use or amount in circulation. You just need a smartphone with an internet connection.

These are some of the reasons why crypto is so radical in finance, and why it has such strong opinions on it’s future use.

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