Cryptocurrency: What It Really Is and Why You Should Avoid It

Written by Expert Contributor Brendan Magee

Owner and Founder of Inevitable Wealth Coaching

These days, you can’t have a conversation about investing that somehow doesn’t involve cryptocurrency (Bitcoin, Firo, Ripple, etc.). When an investment sees a 1,000% rise in value, as it did with Bitcoin in 2017, people take notice. So let’s take a deeper dive into what cryptocurrency (crypto) really is.

Crypto is a digital currency of which there are some 1,500 varieties. People can purchase crypto in a variety of ways, like through a crypto ATM. As you purchase crypto, it gets stored in your digital wallet. Where accepted, crypto can be used to make online payments for goods and services. Pizza has been ordered with crypto, and one professional athlete wanted to be paid in crypto rather than dollars. What’s unique is the purchases don’t go through a third party like a bank. It’s a strictly person-to-person exchange.

This kind of invented currency is nothing new. Think of airline miles as a form of currency that can be used to buy airline tickets. The airline is contractually obligated to honor the currency. However, with crypto, no bank backs the currency. Each individual makes the determination as to whether or not they will accept the currency.

People also look at crypto as an investment. Why? In 2010, one Bitcoin had a value of just one cent. By December 2017, that same Bitcoin was valued at $20,000, which by August 2018 had dropped to $6,000. That kind of volatility gets attention and attracts money.

So, why is crypto so volatile?

1. It’s not backed by a government or central bank. In America, our currency is backed by the U.S. Government. Crypto isn’t.

2. The trading of crypto is not regulated by the U.S. Securities & Exchange Commission (SEC).

3. Crypto is exposed to cybercrime and fraud. (In December 2016, a Slovenian cryptocurrency exchange was hacked, for a loss of $64 million.)

4. If hacked, you can be locked out of your account, and there really isn’t any institution to turn to for protection or help.

There also isn’t any diversification with crypto. If your crypto investment takes a 70% dive, there isn’t anything to offset that kind of loss. Investing in crypto is pure speculation. The investors’ ability to turn a profit depends solely on supply and demand for that particular crypto. Remember, there are about 1,500 variations of crypto today, with more to come. How confident are you in your ability to predict which crypto people will be willing to pay top dollar for?

Another name for speculation and prediction is gambling, and as far as investing is concerned,all forms of gambling are destructive. As of right now, there are just too many red flags to feel good about investing your hard-earned money in cryptocurrency.

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