You’ve heard it in the news, read it on the internet, and you probably have a few friends who highlighted it at a happy hour of socially distancing Zoom. You’ve thought about it, and maybe even looked, but there are still a lot of things you’re not sure about and you’re not ready to hit the shutter button yet. Fear not, for I was once where you are now. There is a lot involved and unfortunately there are not many advisors who are aware of this to give you, the investor, targeted guidance. I’d like to fix this, so I’ll give you some basics, some explanations, and some places to check so you can make informed decisions about adding crypt to your portfolio.
What is a cryptocurrency?
Let’s start at the beginning. Cryptocurrency is generated using blockchain technology. One cannot exist without the other, so let’s start by explaining (in a very simple sense) what blockchain technology is. The content is as follows: blockchain technology allows you to complete trust-based transactions (think sending money, exchanging goods and services, etc.) without using an intermediary to verify the transaction.
Let’s say you want to buy a car from a dealer using only blockchain
Technology instead of the traditional banking method. You trade a little and then agree on the price of the car. The dealer will then give you the address of your digital wallet where you can send the money you use to buy the car. You need to use your digital wallet, enter the reseller’s address and send the money. The transaction is made over a network where it is encrypted and then posted to a public ledger called a blockchain. You then pull out the ledger for you and the dealer, you will see the confirmed transaction and the tree, they will give you the keys and your car is bought. The transaction record remains in the celh stock price forever and can never be deleted.
The cryptocurrency aspect is important here now.
The transaction is encrypted and processed using computing power to solve incredibly complex math problems (cryptography). Solving these problems requires more computing power than anyone else, so it’s shared online. This network has a common “currency” (Bitcoin, Ethereum, Litecoin, etc.) and is used to transact and compensate owners of computers on the network for using their computing power.
Please understand that this example is a very complex distillation process and is by no means complete. Very simple: I want to send you a currency, the network checks that I have the right amount of currency to send you, then sends it to you and posts the transaction in the ledger, which can never be deleted.