Ten years after its release, Bitcoin is still somewhat of a mystery to many. With no bills or even a gold standard, this digital currency operates much differently than the dollar, the yen or the euro. If you are considering investing in Bitcoin or another type of cryptocurrency, first learn the basics about the world’s trendiest monetary system.
What is Digital Currency?
A digital currency is an accepted form of online payment for goods and services. It is also bought and sold by investors who speculate on the currency’s value.
In many ways, cryptocurrencies are like the chips you receive at a casino. You purchase them for a set price, and then you can use them to buy other items. When you are done, you can also sell them back to the casino.
5 Popular Examples
- Bitcoin
- Ethereum
- Ripple
- Litecoin
- Monero
In recent years, the cryptocurrency trend has exploded. There are more than 2,000 different types of digital currencies that are traded publicly right now. In total, these currencies are worth nearly $250 billion. Even ordinary individuals are now using it as part of a strategy to build wealth.
How Cryptocurrency Works
Digital currency is made possible through the use of a technology called blockchain. It is a decentralized processing and recording system that is spread across many, many different computers. Since it does not store your data in one location, it is believed to be more secure than traditional payment systems.
The Properties of Digital Currency
Fast
Bitcoin or other digital transactions are instantaneous. Confirmations are usually received in a few minutes.
Global
Digital currency has a reach beyond any one country. You can complete trades across the world with the click of button.
Anonymity
Cryptocurrencies are not necessarily tied to real-world identities.
For example, those who purchase Bitcoin receive an address that is a seemingly random chain of about 30 characters. Although transaction flows can be and are tracked, it is possible for coin owners to stay anonymous.
Irreversible
Digital currency transactions cannot be reversed at any time, under any circumstances.
Permissionless
Everyone has the ability to buy or sell cryptocurrencies. It is a type of software that anybody can freely download, regardless of where you live or how much money you have.
That being said, digital currency is not cheap.
Right now, one bitcoin will cost you about $10,000 dollars. However, this price is constantly fluctuating, which has contributed to its growing popularity with investors.
If you are creating an investment strategy, cryptocurrency is just one option. Your local tax professional can help you develop a personal financial plan that fits your needs.
