An Introduction to Cryptocurrency
Cryptocurrency has been a buzzword in the financial world for quite some time now, especially since the rise of Bitcoin a few years ago. We’ve heard a lot about them, we know that they can potentially be worth a lot, but none of us have ever seen a cryptocurrency.
Why? How is something we cannot see and touch be so valuable?
What Exactly is a Cryptocurrency?
So, why are they named cryptocurrency? That’s because they’re a digital or virtual currency secured by cryptography. Cryptography makes it almost impossible to counterfeit or double-spend a cryptocurrency. They are mostly decentralised and not issued by central authority, making them immune to government interference or manipulation.
Blockchain technology is the reason cryptocurrency can stay independent. It acts as a distributed ledger enforced by a varying network of computers that makes sure no coin is being spent more than once. This task falls to a group of people known as “miners.”
What are They Used For?
Cryptocurrencies make it easier to transfer funds directly between two parties as it eliminates the need of security provided by a trusted third party and high processing fees. Not only does it make big payments much easier, some argue it is also more secured.
Imagine making a cross-border transaction, without the need of a bank, it can go through almost instantaneously. Even for domestic transactions, they can be conducted outside of bank business hours. In short, it removes the need for a middleman in transactions.
Some companies have even issued their own currencies called tokens which you may use like arcade tokens to exchange for goods and services exclusively from said companies.
It’s all good being easy and secured, but this means criminals can also easily use it to hide illegal activities, such as money laundering and tax evasion. Many criminal transactions online are now conducted in cryptocurrencies, making it hard for authorities to trace.
Why Are (Were) They So Popular?
You’ve heard the stories about Bitcoin investments and how people got rich investing in cryptocurrency. Why exactly did that happen?
Enthusiasts see cryptocurrencies as currencies of the future, believing they will replace traditional forms of money. This is why people raced to buy them, because they will become so much more valuable in the future.
Some people put their investments in cryptocurrency to protect their money and assets from inflation, believing it will not devalue in the same way money in the bank will.
Then, there are speculators who invested simply because they were growing in value, regardless of whether they believe Bitcoin will be the payment of the future!
Should I Invest in Cryptocurrency?
That’s the question. If you asked this question 10 years ago, the answer would be a definite yes. However, since its boom a few years ago, prices for cryptocurrencies such as Bitcoin have been volatile and unpredictable. One word to sum it up would be “speculative,” one day it may be worth six figures, the next maybe just half of that.
While it is not exactly legal tender, Malaysians can buy cryptocurrencies. If you decide on getting your own Bitcoin, perhaps do it through trusted and secured platforms like Luno, or try mining your own, which will require a little bit of software and puzzle skills.
One thing to keep in mind, like traditional currencies, cryptocurrencies do not generate cash flow like stocks. For you to profit, someone has to pay more for the coin(s) than you did.
It all comes down to you, the investor. Do you believe cryptocurrencies are the future? Do you see a spike in value coming up?
While Bitcoin is the pioneer and by far the most well known cryptocurrency out there, there are many others that might be worth a look.
|Cryptocurrency||Market Capitalisation (USD)||Price Per Unit (USD)|
*Table accurate as of March 2021