If you pay attention to the financial markets, it seems like cryptocurrency is all the rage right now. Not just Bitcoin, but Ethereum, Dogecoin, Cosmos, Algorand, and more. And it seems like you hear a lot about people making big money in crypto. So should you buy cryptocurrency?
What is Cryptocurrency?
Cryptocurrency is a form of digital payment that can be exchanged online for goods and services. It is secured by cryptography, hence the name cryptocurrency. The ledgers, or records of who owns what, are kept on decentralized computers using blockchain, a specific type of database. Generally speaking, because there isn’t one central location for the records, cryptocurrencies are generally not subject to the control of governments. Though you will often see cryptocurrencies like Bitcoin represented as a gold coin with a B, this physical coin doesn’t actually exist (at least not as currency – I’m sure someone has 3D printed them for fun).
Cryptocurrency can be great for buying items internationally – the price is the same for both buyer and seller (no need to convert currencies) and you don’t have an additional charge for the currency conversion, as you often have with traditional bank transactions.
How do I buy?
To get cryptocurrency, you generally have to exchange traditional currency for cryptocurrency. Some have likened it to buying chips in a casino – though your chips aren’t going to gain or lose value while you hold them.
You can buy cryptocurrency through an exchange such as Coinbase, the most popular crypto exchange at the moment. You can also buy it through some traditional investment brokers like Robin Hood. You can also buy directly from individuals, though that’s definitely a riskier proposition.
Much like with stocks, you can buy fractions of cryptocurrencies and don’t need to buy “one bitcoin.” On July 1 of this year, one bitcoin was worth over $35,000 USD. I don’t know about you, but I don’t have $35k to put into bitcoin.
What about mining?
Bitcoin mining sounds like a great way to make some money. Have a computer run a bunch of calculations and get bitcoins. And while that is how it works in very simple terms, cryptocurrency mining is fairly complicated. Most notably, you can’t just hook up your computer and expect to do any real mining. Most bitcoin miners have advanced rigs costing hundreds (or thousands) of dollars, not to mention the cost of the electricity to power the rigs. You can calculate how much you can make mining cryptocurrency, and honestly, the answer is “not much,” unless you have a lot of money invested. I’d recommend not worrying about cryptocurrency mining right now.
Should You Buy Cryptocurrency?
If you’re looking for a good investment for your money, I can’t recommend cryptocurrency. It’s simply too volatile. It’s much like speculating or even gambling rather than traditional investing – your bet could pay off, but you could also lose everything. Big investors like Warren Buffett have also avoided cryptocurrencies because they aren’t worth anything but what someone will pay you for them. Think of it this way – if you buy stock in a company, there is something backing up that stock. There’s a business making a product. But what’s backing cryptocurrency? Nothing. So it’s definitely a risk.
That said, if you’ve got a bit of money you want to toss into the market to see what happens, I don’t see any harm in that. Some of the investment platforms like Robin Hood and SoFi have occasionally offered promos to get people to buy cryptocurrencies through them – invest in crypto and they’ll give you an extra amount to invest. If you’re interested in seeing what happens and have a bit of money you want to toss in, go for it. But if you’re looking to actually create long term returns, you’re better off in the traditional stock market.
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Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.