We have all heard of Bitcoin. But exactly what is it? Bitcoin and others like it are viewed both as a digital currency and an investment opportunity which can lead to an identity crisis. These digital currencies allow consumers to securely receive or send payments through the Internet. While legal tender such as dollars is regulated by the government, cryptocurrency has no regulatory agency and operates through a non-centralized network of computers. In theory, because cryptocurrency transfers are encrypted and recorded on digital ledgers (blockchain), hackers or third parties should not be able to tamper with payments.
In addition, they purport to be a low-cost option to using brokers, banks or companies like Western Union that charge substantial amounts for international money transfers. While this concept may seem to be a good idea, many financial experts have voiced concerns over dishonest and unlawful activities such as identity theft, ransom, tax evasion and illegal drug sales. Because cryptocurrencies are unregulated and encrypted, they are hard to trace.
As an investor, be aware that there is a high rate of volatility in Bitcoin and other forms of cryptocurrency. Government regulations around the world fuel volatility and extreme price swings are considered to be normal in this industry. If you are a concerned investor, you should consider the risk of your exposure and analyze how diversification can help your portfolio. Consulting your financial planner regarding your involvement in cryptocurrency is strongly advised.
The original boom in cryptocurrencies transpired before regulations. For nearly a decade, they grew and advanced virtually unobstructed. In short, the cryptocurrency industry was similar to the technology boom in the mid-90s. Different players in the industry will come and go as the cryptocurrency transaction ledger technology called blockchain is in a very early adoption stage. Fraudulent activity is a concern while the industry is still being established.
With regulation, the market value saw a significant price drop. However, as regulations become clearer and legal statuses of crypto markets stabilize, they may become more acceptable. However, as an investor, you should remain vigilant and perhaps a bit skeptical if you are considering this market. Basic investing advice will tell you to buy based on value, not price. Experts agree that the criminal activity, fraud, and future regulations will definitely affect this market.