Technology: What is cryptocurrency?

CRYPTOCURRENCY

THIS RECENT FORM OF PAYMENT IS ON EVERYBODY’S LIPS. BUT WHAT EXACTLY IS IT?

ONYX STAFF REPORT

WHAT ARE CRYPTOCURRENCIES AND HOW DO THEY WORK?

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service. Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security. NOTE: Cryptocurrency is an incredibly speculative and volatile buy. Stock trading of established companies is generally less risky than investing in cryptocurrencies. NerdWallet

WHY ARE THEY SO POPULAR?

Low Fees - There are very few fees associated with using it compared to other forms of payment. No Association With World Governments - This means that cryptocurrencies have the potential to remain stable even when there is turmoil in a specific country. Some investors see cryptocurrencies as a good way to protect their wealth. Potential For Profit - If you buy a cryptocurrency while it’s at a low price, then you can potentially profit when that price rises. Many who invested in cryptocurrencies before they got hot made huge profits. Ease of Use - More online companies are adopting it and more websites are starting to accept cryptocurrencies as payment. Now, cryptocurrency debit cards popping up in certain places. Security – According to experts, using cryptocurrency to pay for things online is actually a lot safer than many other traditional payment options. Ease of Access – It is possible to get the cryptocurrency that you want from reputable sources and the ease of getting cryptocurrency has helped it to grow in popularity. It Is The Future - People who adopt cryptocurrency now are also adopting major technological innovations such as blockchain, which is supposed to make trading a much more transparent process. World Financial Review

ARE THEY A GOOD INVESTMENT?

It is possible to get filthy rich by investing in cryptocurrency. But you could also lose all your money. How can both of those things be true? Well, like most investments, crypto assets come with a host of risks but also vast potential rewards. Cryptocurrency is a good investment if you want to gain direct exposure to the demand for digital currency and the projects or businesses they facilitate. Whether crypto assets pay off for investors will ultimately be determined by whether they achieve widescale adoption. The Motley Fool

HOW DO I PROTECT MYSELF?

If you’re looking to buy a cryptocurrency in an ICO (Initial Coin Offering), read the fine print in the company’s prospectus for this information:

• Who owns the company? An identifiable and well-known owner is a positive sign. • Are there other major investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency. • Will you own a stake in the company or just currency or tokens? This distinction is important. Owning a stake means you get to participate in its earnings (you’re an owner), while buying tokens simply means you’re entitled to use them, like chips in a casino. • Is the currency already developed, or is the company looking to raise money to develop it? The further along the product, the less risky it is.

It can take a lot of work to comb through a prospectus; the more detail it has, the better your chances it’s legitimate. But even legitimacy doesn’t mean the currency will succeed. That’s an entirely separate question, and that requires a lot of market savvy.

But beyond those concerns, just having cryptocurrency exposes you to the risk of theft, as hackers try to penetrate the computer networks that maintain your assets. One high-profile exchange declared bankruptcy in 2014 after hackers stole hundreds of millions of dollars in bitcoins. Those aren’t typical risks for investing in stocks and funds on major U.S. exchanges. NerdWallet

HOW MANY CRYPTOCURRENCIES ARE THERE?

According to data from CoinMarketCap, there are currently more than 7,800 in existence. New tokens are popping up all the time–each with a different use case and backstory. Currency.com

ARE CRYPTOCURRENCIES LEGAL IN THE U.S.?

Unlike dollar bills and coins, cryptocurrencies are not issued or backed by the U.S. government or any other government or central bank, according to the National Conference of Legislatures. While it is difficult to find a consistent legal approach at state level, the U.S. continues to make progress in developing federal-level cryptocurrency legislation. The Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies to be legal tender but considers cryptocurrency exchanges to be money transmitters on the basis that cryptocurrency tokens are “other value that substitutes for currency.” The Internal Revenue Service (IRS) does not consider cryptocurrency to be legal tender but defines it as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value” and has issued tax guidance accordingly. Cryptocurrency exchanges are legal in the United States and fall under the regulatory scope of the Bank Secrecy Act (BSA). Comply Advantage

As with any financial investment, “ONYX Magazine” recommends that you speak with a professional advisor and study on your own before making any decisions.

HOW DO I BUY CRYPTOCURRENCIES?

The easiest way to acquire cryptocurrency is to purchase on an online exchange like Coinbase, where you can buy major cryptocurrencies. For some cryptocurrencies, Coinbase offers opportunities to earn some for free. Keep in mind that you do not need to buy a whole coin. On Coinbase, you can buy portions of coins in increments as little as $2 or your local currency. Coinbase