1. What is a cryptocurrency?
A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The first cryptocurrency to be created was #Bitcoin back in 2009. Decentralized cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation. Today there are hundreds of other cryptocurrencies, often referred to as #Altcoins. You can view the variety of available cryptocurrencies at Coinmarketcap.com
2. Why you want to use cryptocurrency, such as Bitcoin?
There’s many advantages to using it, many of which include:
- Quick, Easy and Convenient – You can send and receive bitcoins anywhere in the world at any time in a matter of a few minutes.
- Low Fees – Normally, the fees for Bitcoin or Ethereum or any other cryptocurrency transactions are very small, compared to conventional remittance practice of fiat currencies.
- Secure – When using cryptocurrency, users remain in control of their transactions. You’re also protected from identity theft since cryptocurrency payments can be made without personal information associated with the transaction.
- Transparent – All cryptocurrency transactions are fully available on the blockchain for anybody to verify and use in real-time.
- In the investment world, it is considered, an alternate asset class such as Gold, a safe haven from fiat currency depreciation from whatever reasons that cause it.
3. How does cryptocurrency like Bitcoin works?
From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.
Behind the scenes, the Bitcoin network is sharing a public ledger called the “block chain”. There are other cryptocurrencies such as ethereum and litecoin, each has its own blockchain network. This ledger contains every transaction ever processed, allowing a user’s computer to verify the validity of each transaction. The authenticity of each transaction is protected by digital signatures corresponding to the sending addresses, allowing all users to have full control over sending cryptocurrency from their own cryptocurrency addresses.
4. Is cryptocurrency like Bitcoin really used by people?
Yes. There are a growing number of businesses and individuals using Bitcoin. This includes brick-and-mortar businesses like restaurants, apartments, and law firms, as well as popular online services such as Namecheap, Overstock.com, and Reddit. While Bitcoin remains a relatively new phenomenon, it is growing fast.
5. Is investing in cryptocurrencies risky?
Fundamentally investing in cryptocurrencies has these risks:
One or more off the currencies may significantly decrease in value or even go to zero
This is the most likely investment risk, because there is a very good chance that in 5 year period at least one of the recommended portfolio currencies will significantly decrease in value or even go bust. However, one must also take into account that at least one of recommended portfolio currencies are very likely to exponentially increase in value. The primary reasons a cryptocurrency may significantly decrease in value or go bust could be:
- poor adoption,
- stronger competitors,
- technical flaws,
- various attacks,
- regulation from authorities,
- bad core team,
- etc.
One thing you have to remember is that at this present time, investing in cryptocurrency such as Bitcoin is a very speculative one, due to human greed for receiving easy money.
You have to be prepared to lose bulk or all of your invested capital in such investments due to its very new and evolving business models that may not work in years to come.
The advice by most intelligent investors is to use no more than 5% of your investable assets in such investments.
6. What is the the preferred strategy in cryptocurrency investments?
There is no one size fits all on the above.
If you’ve decided to go ahead, should you invest in one lump sum or dollar cost averaging way of your capital? Please read my post using this link for possible answer.
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Flash News (31-Oct-17): CME Group Inc. is planning to have Bitcoin Future Contracts listed in its exchange before end of this year – The implication is volatility of Bitcoin currency can be hedged! It addresses a major concern of Bitcoin’s usefulness as a stable stored currency.
CME Group Inc. (Chicago Mercantile Exchange & Chicago Board of Trade) is an American financial market company operating the world’s largest options and futures exchange.
If you would like to know whether you are ready for it, please read my recent post on “5 Tips To Trade Bitcoin Or Volatile Cryptocurrency”
For cryptocurrency starter, you may like to consider opening an account with Coinbase, a secure online platform for buying, selling, transferring, and storing digital currency.
Note:- If you buys or sells US$100 of digital currency or more through Coinbase using this link, you and your referral will both get US$10 worth of free bitcoin.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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If you’ve comment on FAQs, please drop me a line.
Thanks,
Reuben Ong
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