A crash course in cryptocurrency

Cryptocurrency can be intimidating and confusing. There are so many terms and new technologies to keep track of. Read on to learn what cryptocurrency is all about, so you can decide if it's something worth looking into for your financial future.

[Photo Credit: ra2 studio]

What is cryptocurrency?
Cryptocurrency is digital money stored in an electronic wallet or blockchain system that only exists electronically. It’s an alternative form of payment which uses cryptography (the process of converting legible information into an unreadable format) when making transactions between two parties over the internet.

How does cryptocurrency work?
You use an online app or a “wallet” to hold your currency, creating an account on a trading exchange platform, or online broker, through which you transfer real money to buy the cryptocurrency. This wallet keeps proof of your holdings, and lets you trade or spend your cryptocurrency.

___________________________________________

Want to learn more about investing cryptocurrency?
Let Yellow Pages help you find the right financial planner or investment advisor to get you started.
___________________________________________

Cryptocurrencies don’t have to rely on the traditional financial system because they work through the use of blockchain technology. A blockchain is a digital ledger where all cryptocurrency transactions are stored, with each “block” acting as a record of secure transactions. This is the technology on which most cryptocurrencies are based. The difference between cryptocurrency and crypto tokens is that cryptocurrencies have their own blockchains, whereas tokens are built on an existing blockchain.

Because blockchains are decentralized, unlike bank currency, there’s no middleman needed to oversee transactions. As a result, blockchain transactions are much faster than traditional transfers.

How do I know which cryptocurrency to buy?
This is a million-dollar question! While development began as early as the 1980s, cryptocurrency didn’t really get going until the launch of Bitcoin in 2009. Canada has about 5,500 different cryptocurrencies, including names you may have heard such as Ethereum, Binance Coin, Tether, Cardano and Dogecoin, among others.

What are the risks of investing in cryptocurrency?
While many investors see cryptocurrencies as the future and are trying to get in on the ground floor, most see them as speculations and not really investments. Others merely like the fact that it removes the banks from the money equation completely, while still being secure. Some think that Bitcoin will become a competitor to gold, or perhaps even overtake the U.S. dollar completely by 2050. It’s times like this that you wish you had a crystal ball.

The problem is that the value of cryptocurrencies is far from stable, and can verge on volatile. Some can quickly become inactive and cease to exist. And though security is much better than it used to be, fraudsters are everywhere. You have to protect your wallet like you would an actual wallet — and be sure to read the fine print.

The legality of cryptocurrencies depends on the country; they’re not legal in China, Turkey or Russia, for example.

If you’re interested in getting up to cryptocurrency speed, do your research. See what major investors are saying about it, and connect with a financial advisor who is knowledgeable about this emerging market.