I led an Is It Worth Your T.E.A.M.? workshop for a group of young professionals recently. One of the questions we worked through was about investing money. There were usual questions like, Should you invest in property or stocks? Then one participant said he felt like it was time to do some serious research on cryptocurrency. I realized that it had been a couple of years since I even thought about cryptocurrency and, at the time, I dismissed it as an experiment that probably wouldn’t go anywhere. But this year, I’ve seen television commercials for tax preparers offering to make sense of how to report your cryptocurrency income to the government. Guess it’s time to take another look and see how the experiment has iterated.
What Is It?
Cryptocurrency (AKA Crypto) is a purely digital form of money. There are currently over 10,000 different cryptos. Bitcoin is the original and the most popular. Crypto comes into existence through a process called mining. It’s a bit like a modern version of mining for gold, but instead of a person panning in a river, data centers solve mathematical puzzles to produce coins. Also, much like a gold miner spent a great deal of human energy panning, data centers use a great deal of electrical energy computing. This makes mining crypto environmentally unfriendly. Regular currency is backed by banks and governments, but crypto is administered by blockchain. This is a type of technology that acts like its name. A block is a set of transactions that are validated by an online network. The blocks are strung together to form a ledger. The ledgers form a database that is shared by nodes (e.g., a small server) in a computer network. Since the blockchain is a distributed network, this decentralized transaction record system is considered very secure.
How Do You Use It?
Right now, there aren’t many places accepting crypto for purchases. It’s mostly an investment option and a volatile one. You buy and sell it on exchange websites like this one. If you choose to invest in crypto, please remember to bankroll your emergency fund, pay off debt, and set up a system for saving for retirement first. Think about limiting crypto to 10% (tops) of your investment portfolio. Even though it’s trendy, most investors continue to choose gold over crypto due to the current inflation and Russia’s invasion of Ukraine.
Does It Have a Future?
So, it seems that not much has changed since the last time I researched crypto. We are still in the early-adoption phase, but major financial institutions are starting to get involved. Recently, Fidelity announced it would offer a bitcoin option in their 401(k) plans. I imagine that eventually using crypto will be much like online banking transactions. To reach that goal, crypto administrators must figure out how to battle scams, how to scale it, and how to stop the environmental damage mining causes. In spite of the challenges, crypto is predicted to exponentially grow by 2025.
My research indicates that cryptocurrency is polarizing; you either love it or you hate it. Which side are you on? Please share what you think about it in the comments.