Digital Currencies and Crypto Currencies explained
So much talk of Digital Currencies and Crypto Currencies right now! Wondering what it’s all about? Well here is a short article on Crypto Currencies Explained.
If you’ve heard or read about, for example, Bitcoin, Ethereum, Litecoin, Cardano, Polkadot, Stellar, Chainlink – (or numerous others!), you may have wondered what on earth all these digital currencies are and how they work. Are they accessible to you? Are they safe? Is it all a dangerous scam?
Well – here, we try and lift the veil of confusion and explain some of the very basic facts surrounding this subject.
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We begin with the most important fact. Unless you have specialist personal knowledge of the subject you should not proceed into this ‘world’ without proper professional advice – because yes – as you may have imagined, the risks are significant. Click here to find a financial adviser close to you.
What is Digital Currency
Put simply, Digital Currency allows you to make payments online to buy goods or services. Imagine them being similar to ‘casino chips’ or ‘tokens’. You change your traditional currency into these ‘tokens’ and with these you buy goods and services online.
How many are there and why do people prefer them?
There may already be as many as 7,000 different Digital Currencies at play and using them appeals to many people for a variety of reasons. Some believe that this type of ‘currency’ will be the main player in the future, and so are rushing to ‘buy’ it now, as they hope (and presumably believe) that the value will increase as (or if) usage becomes more popular.
They may be correct in their hopes and assumptions, as many do see it as more secure than traditional banking systems have been, since over the years, these have effectively devalued money by simply ploughing more into the system when they have felt the need (inflation / quantitive easing).
Also, Crypto Currencies rely on an ‘apparently’ very secure technological processing and recording system (called ‘Blockchain’). However, all this is still very new to most people and hence it may be best to proceed with extreme caution!
Are they an investment or a bet?
Some may say so although the more cautious would likely say that only money that you are prepared and able to lose should be used.
The point is that the only way to make money from Digital Currencies is to sell the currency for more than you paid for it – and how can this be anything like a certainty?
We all know that all investments can go up or down – but the level of volatility where Crypto Currencies are concerned is very high. In itself, Digital Currency doesn’t and cannot generate cashflow and this means that any ‘investments’ you make are really just ‘speculative’ i.e. you may speculate that you could make a lot of money by buying Digital Currency and selling it for more – but you are not able to influence the timing and amount of value change. It is a hope.
And this is where people start to query whether this format could truly ever replace ordinary currency, in that nobody will want to ‘spend’ their currency unless they are assured of a return. They will wish to hang onto their stash until sale values increase. But what if you need a new combine harvester or pound of butter now? You won’t want to spend. Hence, this may not ‘really’ be viable as actual currency.
The future. Will Crypto Currencies make me rich?
Who knows what our futures will look like. For now though, caution by those other than the super-rich, may be advisable. There is no doubt that money could be made. It has been proved. But there is also no doubt that money could be lost.
So, for most of us there are likely better, safer ways to invest – but as mentioned above, as long as you seek proper advice, and fully appreciate and can afford the risks, the sky may be your limit.