#1 Crypto is digital
Likely you have heard words floating around like blockchain, transparency, and algorithm, all referring to how crypto works. While it is great to understand these terms, the overall concept to grasp is that crypto is a currency, or medium of exchange, that is entirely digital. This means that everything about the transactions happens electronically on the Internet. Therefore, you must be comfortable investing through online platforms, websites, or smartphone apps.
#2 Crypto takes on many forms
When people say “crypto,” they are referring to Bitcoin, which is one of the most well-known and popular types. However, there are more than 15,000 unique cryptocurrencies to choose from, and this number seems to grow constantly. Some are used primarily to buy and sell things, much like any other currency. Others are purchased and held in hopes that their value increases, more like an asset or a stock. Finally, some types are more for entertainment and gaming or created with a very specific purpose in mind. Therefore, before investing in crypto, research different currencies of interest to understand what class they fall into.
#3 Crypto is decentralized
Crypto transactions occur without oversight from a central bank, government, or financial institution. Because of this, fees to transact are inexpensive and transactions can happen pretty quickly for users. In addition, recordkeeping is more of a public ledger where no one person or entity has ultimate control, making it highly secure against theft or seizure. Being decentralized also allows crypto to quickly move from country to country and be a truly international currency. Investing in a decentralized currency can be exciting and have many advantages, but it can also face challenges, such as vulnerabilities in code and unknown regulatory crackdowns.
#4 Crypto is volatile
As you might have already figured out, crypto is complex. It is also quite volatile. Like many other types of investments, it can have price rises and dips that change based on news and market speculation. However, the ups and downs tend to be much more exaggerated because crypto lacks many of the vast institutional investors that other markets have. The crypto market also has less liquidity, making it less stable. So, if you invest in crypto, be prepared for larger than expected gains or losses, depending on the day.
#5 Crypto is still immature
The first cryptocurrency, Bitcoin, wasn’t created until 2009. In the scheme of things, crypto is still a growing and maturing market. As with anything relatively new, much about crypto still needs to evolve and change as it grows. While crypto is worldwide, for example, it is not yet accepted as payment everywhere or recognized as legal tender in many countries. In addition, many people hesitate to invest because they are not entirely sure how things like new government legislation, updated tax laws, and currency restrictions will affect the market and values.
As with any investment, the key to deciding where to put your money lies in knowledge. By taking the time to understand some of the risks and rewards of crypto, it should be easier to make an informed decision about whether you wish to incorporate it into your investment portfolio.
At CleveDoesMore, the best part of our job is helping people make informed choices to minimize their risk while building equity and wealth for their future.