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What is Cryptocurrency?


Cryptocurrency is a digital currency that’s been created from computer code. Bitcoin is by far the biggest cryptocurrency today. It will be the example we use throughout this piece but there are over 5,000 different cryptocurrencies.

Satoshi Nakamoto is the pseudonym of the person/s who invented Bitcoin. While today Crypto is increasingly seen as a regular asset (albeit still a non-traditional one) in its early years the currency was used in shady ways on the dark web for things like ransom payments and drug trafficking (book recommendation).  Take a look at our Investment Pathway to learn more.


What does that have to do with blockchain?


Blockchain is to Bitcoin as iOS is to the iPhone. It is the underlying technology.

Effectively it is a way of recording the history of any digital asset in a way which is unalterable and transparent. 

It is a decentralized network meaning data is stored globally on thousands of servers – and that everyone can see everyone else’s entries in near real-time but no one can make any changes. 


What is the benefit of cryptocurrency?


Depends who you ask but proponents of crypto will point to security, speed, consistency with the requisite qualifications, a successful currency i.e. scarcity, divisibility, utility, transportability, durability, and counterfeit’ability.

A significant benefit is also decentralisation which means that no governments have a say, or an influence, on what’s happening with them. For example, traditional currency is influenced by interest rates and quantitative easing (QE); if fact it is argued that Bitcoin was born as a reaction to QE.


What does QE have to do with anything?


The key to a currency’s value is its scarcity (supply!) and Bitcoin is far scarcer than other “stores of value” because there will only ever be 21 million bitcoins in circulation. 

About every 10 minutes 12.5 bitcoin released and every four years that amount halves until we hit the ceiling of 21 million.


So how do I get some?


There are in fact two ways to acquire Bitcoin:

  1. You can mine it: It’s hard, expensive and doesn’t always result in adding crypto to your wallet but you also don’t have to hand over any money, rather you (can) earn Bitcoin as a reward for verifying bitcoin transactions which are added to the blockchain. You audit for your reward.
  2. You can trade it: taking a more traditional path of earning an asset you can buy it on an exchange (or a far far more risky approach is to use derivatives to speculate to make money on volatility).

Unless you have significant funds, chances are if you buy Bitcoin you are buying a portion of a bitcoin – bitcoin can be split into one hundred million pieces so you can invest almost any amount and still be part of the bitcoin rollercoaster.


What’s been happening?


The price of bitcoin reached an all-time high on November 30th when it closed in on $20,000. And some analysts say the cryptocurrency still has a lot of room to run higher.

Bitcoin isn’t backed by an asset (the way gold or a stock is) so it’s valuable because people believe they’re valuable. On the surface, it is simple – like with any other market-traded “good”, prices for crypto are determined by supply and demand. And this demand has been accelerated as more institutional investors and “credible players” pushing mainstream adoption – for example Paypal recently authorised the use of this cryptocurrency on its platform.

Despite all this – crypto is still a gamble.

Last year and earlier this year, and certainly back in 2007, prices were much lower and there was uncertainty and confusion which exacerbates volatility (which can be good for investors) – right now you’d just be buying risk high and selling low.

Remember: there are no underlying business fundamentals to Bitcoin, it is, for the most part, a purely speculative play. It is a highly risky play and you should absolutely not get involved in cryptocurrencies, or any investments for that matter without carefully considering whether you can afford to take the high risk of losing your money. Check out the Risk Pathway to learn more.