Jul 4, 2021
What is a Cryptocurrency? — by a dummy
What is a cryptocurrency?
A crypto-currency or crypto is a digital money which is used to buy goods and services. It uses an online ledger book with strong cryptography to secure online transactions
Crypto does not exist physically in form of paper money and it is not issued by a central authority.
It typically uses a decentralized control as opposed to a central bank digital currency
When implemented each crypto-currency works through distributed ledger technology known as blockchain, which serves as a public financial transaction database.
Much of the attention in these unregulated cryptos is to trade for profit, with opportunists at times driving prices upward.
The most popular cryptocurrencies are Bitcoin, Ethereum, Dogecoin, Bitcoin lite etc.
Types of cryptocurrencies available and its worth?
There are 10,000 different types of cryptocurrencies that are traded publicly, according to CoinMarketCap.com. And cryptocurrencies continue to flourish, raising money through initial coin offerings, or ICOs. As per CoinMarketCap, the overall value of all cryptocurrencies on May 27, 2021, was above $1.7 trillion — down from April high of $2.2 trillion.
Is cryptocurrency a good investment?
Cryptocurrencies may go up in value, but many investors see them as sheer speculations, not real investments.
Why? Just like real bills, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
This is called as “the greater fool” theory of investment.
On contrary, an organized business grows its value over time by growing the profitability and cash flow of the operation.
For those who see crypto such as Bitcoin or Ethereum as the currency of the future, it should be noted that a currency needs stability.
A note from the legendary investor Warren Buffett compared BTC to paper checks. He says “It’s an effective way of transferring money and you can do it anonymously and all that. A check is a way of transferring money too. Are checks worth a whole lot of money? Just because they can transmit money?”
Should you get cryptocurrency?
Crypto is a very unpredictable and volatile. Stock trading of recognized and reputable companies are usually less risky than investing in cryptocurrencies such as BTC, ETH, DOGE.
