What exactly is cryptocurrency and why should you invest in it? Is it the future of our banking system or is it just another millennial unicorn?
The last few months seem to be known as a cryptocurrency boom. From all kind of controversies surrounding Bitcoin, to the new way of fundraising via the Initial Coin Offering (ICO). The concept of an ICO is quite simple but read this article for full explanation.
While authorities all around the world are still not decided on whether digital currencies should be legal or not (well, maybe except China), there is one thing for sure — cryptocurrency is at its peak time. And if anyone was planning to invest in it, now is the time.
But what exactly is cryptocurrency and why should you invest in it? Is it the future of our banking system or is it just another millennial unicorn?
Before moving on to the nitty-gritty details of cryptocurrency, it is crucial to understand its history and how the idea was born.
During the 90’s there were several attempts at creating digital currency, but most of them ended up being centralized by a founder and were struggling to find merchants who would accept them as a payment method. Hence, the majority failed.
But it wasn’t until 2008 and the big financial crisis that Bitcoin and the idea of cryptocurrency were born. The founder, Satoshi Nakamoto, aimed to create a currency that nobody has ever thought of before — a digital money that would work on a peer-to-peer sharing database.
The core idea of any cryptocurrency on the market is decentralization — being free from governmental control. Transactions are an open source, controlled by a code and a third party does not regulate them. So no third party can affect the currency. The only entity that can influence the coin is the peer-to-peer sharing network.
Apart from cryptocurrency being publicly shared among all members, crypto coins are also built on cryptography. Thus, they are not secured by people or trust, but by complicated math. Despite several hackers’ attacks over the last few years, it is highly unlikely anyone would be able to comprise the cryptographically secured address that belongs to a particular cryptocurrency.
Digital currency is bounded by similar laws like fiat currency on your bank account – there are multiple entries to a database (transfers, payments etc.) and they are all recorded in your account history. And unless there are specific conditions met, (e.g. you have to have money to be able to transfer them; 2F authentication), you will not be able to make any changes to the database.
Cryptocurrency works similarly – it is all about entries to the database that nobody can change unless there are specific conditions met. Every peer of the network can see the entire transaction history with details; hence it would be extremely difficult to commit a fraud as everyone would immediately find out.
The most significant difference is in the fact that cryptocurrency is not backed up by gold, silver or any government’s official currency. Instead, it’s peers’ belief in the value of the currency.
Why Investing in Cryptocurrency Is a Good Idea
This is a billion-dollar question that not many know how to answer. But in my opinion, the best way of understanding why you should invest in cryptocurrency is to look at the future of digital currency.
There are over 1000 cryptocurrencies, with much more popping up every day, and the number is continuously growing. While Bitcoin may not be the best investment anymore, the way things are at the moments, it is doubtful that cryptocurrency will ever die out.
The truth is that after several global financial crises’ and growing distrust towards banks and fiscal authorities, people love the idea of being in charge of their own money. Being able to invest, sell or trade without the big brother watching, seems like a dream scenario for many.
Cryptocurrency gives people freedom, and by disassociating from central bank and authorities, it gives power back to those who own their money, and they can be in control of their wealth.
Digital currency also has an advantage over fiat money in its lack of risk for the economy collapsing. The first thing that is affected when an economy is suffering is the local currency – it merely devalues. Cryptocurrency may be extremely volatile, but it is left in the hands of its owners as opposed to the government.
The reality is that cryptocurrency can give an impression of being an illusion and a hopeless dream for the future of economy and banking system. But at the same time, it is still in its infancy stage, and a lot of improvements are needed. Once that happens, though, digital currency will likely start replacing, or change, the traditional banking system.
The recent speech by Christine Lagarde from IMF only confirms that even the banking industry is changing its perception of cryptocurrency. Lagarde admitted all the downsides of digital currency, but she also acknowledged that is is the future of banking system.
Investing in cryptocurrency now will come with an advantage making a profit in the future. Most crypto coins serve only as an incentive to a technology that will revolutionize the world, e.g. IOTA or Ripple. While the investment risks are higher at the moment, in the future, it may all pay off.
So Should I Invest?
If you want to know whether you should invest in cryptocurrency, the answer is yes. But it is not just a matter of picking one and waiting to see is going to happen. You have to think about how to invest.
Consider your budget, the length of the investment and if you believe in the technology behind a particular cryptocurrency. Most of the time, this is more important than looking at the current value — remember, crypto coins fluctuate, and the price can change in few hours.
The cryptocurrency seed has been already planted, and what now belongs to early adopters, in the next few years will become mainstream. You do not want to follow that crowd; you want to invest in cryptocurrency before the market becomes exploited.