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What is Crypto?

What is Cryptocurrency?

What is Crypto?

Over the last couple of years cryptocurrency has become an increasingly popular topic. Crypto can be a confusing and tricky thing to navigate. The biggest question and honestly, the most difficult to answer is, “What is Cryptocurrency?”

Intro: Cryptocurrencies are a digital or virtual currency that is secured by cryptography, making it nearly impossible to counterfeit or double-spend. They are often decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Cryptocurrencies are becoming increasingly popular as an investment vehicle, and their value has been growing rapidly in recent years.

Now you understand what it is completely, right??? Your answer is probably, NO! Let’s dig in more.

The shortest explanation is, cryptocurrency is digital/virtual currency. These currencies can be traded in the financial markets. There are literally thousands of them, but the most common and the most valuable is Bitcoin. Some other currencies that are popular among traders are Ethereum, Ripple XRP, Litecoin, Cardano and Dogecoin to name a few out of the thousands available. Right now, you might be saying, “yes, bitcoin, I’ve heard of that,” or you know someone that says they own Dogecoin. But do you, and more importantly do they, really understand what it is and how it works?

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Let’s dive into that. How does crypto really work? First, it is important to understand that cryptocurrency is not backed by any government or legal authority. Like a dollar bill is essentially backed by the federal reserve, crypto on the other hand, is not backed by a public or private authority. This is also why the legal status of cryptocurrency has been a fierce debate and a number of countries have banned their use as a monetary exchange. Here in the United States, while we do consider it a form of monetary value, the IRS considers them a financial asset or property, and as you can guess, they want their fair share of any capital gains or income made from any crypto exchange. There is also heavy debate on how to regulate this type of asset.

As far as obtaining cryptocurrency, it is fairly easy. You can simply just purchase it from crypto exchanges, which can be done through certain apps or even through a broker. It can also be invested through financial derivatives like ETF’s (exchange traded funds) or trusts. You possibly have heard the term crypto mining. Without going too far down a rabbit hole here, crypto mining involves the use of software that contains a history of transactions (Blockchain). Technically, anyone with a computer can mine but due to the energy (computer) and resources required, most mining is done through larger firms or groups of investors. Once you have your cryptocurrency you need a “wallet” or account to store your currency.

So, what is the point, where is the value? Well, since they are not backed by a public or private entity, like the federal reserve, crypto is extremely easy to transfer between two parties. Not to mention, it eliminates the risk of any large banking crisis. Investing in crypto is generally where the profit comes in though. Just as you can trade any ETF, you can do so with crypto. These markets continue to grow and have reached trillions of dollars in value. You can purchase cryptocurrency at the market value, which is HIGHLY volatile (has no mercy on your account). You can use your cryptocurrency for exchanging to another form of currency, purchase items from participating retailers and transfer funds to anyone in the world. People are often looking for find the “perfect” or “best” currency to purchase in HOPES that it will rocket to the moon in value. There is no doubt that the crypto world has made many people wealthy in a small amount of time, but it can also take away that same wealth just as easily. The appeal of cryptocurrency is having a digital asset with the flexibility of use and considerable jumps in value in a short amount of time. The traditional stock market has similar appeal but more limitations, which is why so many people have joined the crypto world.

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Before you think about investing in any type of crypto, we encourage you to become very well educated and be aware of what you’re venturing into. Cryptocurrency can be a very volatile market and likely to move your account balance outside of your risk tolerance and emotional threshold- (hodl). If you lack proper education of how the markets are moving, news, FOMO (Fear Of Missing Out), the specific cryptocurrency developments and a thousand other things that move the crypto world. As with any type of investing there is always going to be risk. We want to educate you to help manage the risk, whether it be in real estate, financial markets, business, entrepreneurship, etc., Our goal is to help you get to where you want to go. Check out our Crypto updates in the club to continue learning more about this unique opportunity that investors have with this new type of investment.

Areas of Review

Takeaway

Big picture takeaway points

  1. Crypto is a digital or virtual currency.
  2. Crypto is not backed by a government agency, therefore does not follow the same rules.
  3. Money is made by trading or “mining” cryptocurrency.

Reflection

Self-reflection questions to think more about the content

  1. I have done my research and know enough to reduce the risk when it comes to trading crypto?
  2. Do I know someone that has made money in crypto, but do I also know someone that has lost money in crypto? Was that person properly educated?

Legacy’s Building Wealth Club offers you the financial education needed to pursue your goals. Let our education and experience lead the way!

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