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Cryptocurrency Trading: Three Essential Facts

February 05, 2018

Historically, the stock market has been one of the greatest creators of wealth.

While U.S. stocks have returned an average 9% return between 1871 and 2017, crypto currency returns have left that number in the dust since the start of 2017. But before you rush off to mortgage the home to buy into the crypto craze, there are a few facts you need to understand.

Crypto Craze Fact No. 1 – Digital Currency is Volatile

If you’re new to crypto currencies, the volatility can be dizzying.

Look at Bitcoin alone. Its value soared from $1,000 to nearly $20,000 before dropping to $11,140 in January 2018. Since then, its price has risen, dropped and risen again dragging other crypto currencies along for the ride.

Crypto Craze Fact No. 2 – There is no fundamental backing

Unlike the U.S. Dollar or gold, digital currencies aren’t backed by anything. They also have no direct fundamental ties to anything, which makes valuing a crypto currency nearly impossible. However, that’s what also makes them so attractive.   There is no bank or government involvement.   There are no transaction fees and no real reason to give your actual name. Better yet, merchants around the world are just beginning to accept them, including web hosting to pizza and manicures.   It’s just about revolutionized transactions.

Crypto Craze Fact No. 3 – There’s More Value in Blockchain

You’ll also hear about miners, which generate the “coins” in a ledger (also known as a block chain, which applies to most but not all crypto currencies). In order to spend or receive the currency, a user must first create a transaction and broadcast it to the entire network, which then stores the information in a ledger. For that transaction to be successful, it must be added to the public digital ledger.

Or, as the BBC explains it:

It’s a “a method of recording data – a digital ledger of transactions, agreements, contracts – anything that needs to be independently recorded and verified as having happened. The big difference is that this ledger isn’t stored in one place, it’s distributed across several, hundreds or even thousands of computers around the world. And everyone in the network can have access to an up-to-date version of the ledger, so it’s very transparent.”

Banks believe it could be the future of financial transactions, for example.   In fact, according to BBC, “If banks started sharing data using a tailor-made version of blockchain it could remove the need for middlemen, a lot of manual processing, and speed up transactions…”

In short, there’s a good amount of value in the blockchain, too.

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