If you’ve been watching the news at all, you’ve probably run into the term “cryptocurrency” a few times. Cryptocurrency is far from a fad, though that’s what economists believed it would be back in 2009 when Bitcoin was first invented. Over the past twelve years, cryptocurrency has taken off, and, while it’s far from being as ubiquitous as cards and cash, it’s not going anywhere.
In this guide, we’ll take you through the ins and outs of crypto. Cryptocurrency is a new asset class that estate planning attorneys are seeing in their clients’ portfolios. For more information, watch my YouTube channel, where I discuss different topics relating to cryptocurrency and estate planning.
What is Cryptocurrency?
At its heart, cryptocurrency is a type of payment. You can use this online payment to purchase goods and services. Cryptocurrency exists on a blockchain, which is a decentralized technology that stores ledgers of individual coin ownership. Blockchain is spread across many different computers that record and manage transactions. When you pay for something using cryptocurrency, your ledger reflects that. When you amass more crypto, your ledger reflects that too. Unlike a central bank’s digital currency, cryptocurrency has no central issuing authority.
What are the Different Types of Cryptocurrency?
Though you’ve no doubt heard of Bitcoin, there are more than 10,000 different, publicly-traded cryptocurrencies. More cryptocurrencies continue to proliferate through ICOs (Initial Coin Offerings, which fund the new coins’ development). As of July 23, 2021, the total value of all crypto was $1.3 trillion. Common coins include Bitcoin, Ethereum, XRP, Stellar, Cardano, Chainlink, USD Coin, and Uniswap.
The Pros and Cons of Cryptocurrency
If you’re intrigued so far, you probably want to weigh the pros and cons of crypto. Everything has its advantages and disadvantages, and cryptocurrency is no exception. Some “pros” of cryptocurrency include: the potential for high returns, immediate settlement for international and domestic transactions, payment fraud protection because of the nature of the blockchain, portfolio diversification, and greater liquidity.
On the flip side, there are “cons” of cryptocurrency, such as the potential for large losses because the coins’ value is so volatile. Also, crypto has been used in black market activity, as it is unregulated, unbacked, and there aren’t really refunds when you conduct transactions because the price of the coins is so unstable. Also, though you’re largely protected from payment fraud, there’s always the offhand chance of cyber-hacking.
Is Cryptocurrency Safe?
After reading the cons, you might be wondering if cryptocurrency is safe. According to TIME, the blockchain tech behind crypto is “inherently secure” because the ledger is decentralized and public. Every transaction undergoes its own encryption process. Even though there is a risk of cyber-hacking, as stated above, that risk is low. The blockchain is constantly reviewed by bitcoin users, and that makes it hard to hack.
At the same time, is blockchain a secure investment? When compared to blue-chip stocks, the answer is a flat-out no. Cryptocurrency is uncertain, and Consumer Reports describes crypto as one of investing’s riskier choices. Digital currency might be a hot commodity, but the prices are volatile. Bitcoin might be worth a ton of money one day and then plummet the next.
How Do I Invest?
If you want to go forward and invest in cryptocurrency, the first thing you’ll want to do is find an exchange. You’ll need to choose a platform, such as Bitcoin.com, Changelly PRO, Coinbase Exchange, or ZT to get started buying cryptocurrency. The exchange will likely require you to verify your identity, go through a registration process, and deposit non-crypto money into your account.
After you’ve gotten that process set up, you’ll want to pick a coin. Most coins have a symbol. For example, Ethereum is “ETH,” Bitcoin is “BTC,” and Dogecoin is “DOGE.” Once you’ve picked your coin, you can begin buying and selling.
Hopefully, this guide has given you somewhat of a start on cryptocurrency and estate planning. It’s a complicated field, and there’s no denying that crypto is volatile. However, it can be lucrative. Call the attorneys at WFP to find out if investing in cryptocurrency is the best choice for your wallet.