In this video, I’m going to explore cryptocurrencies.
A cryptocurrency is a broad definition for an online currency. The first major virtual coin is Bitcoin. It’s a decentralized currency, meaning that no government, central bank or other entity controls how much of it exists. Unlike paper money, you can’t just “print” more of it. As such, it’s theoretically resistant to inflation.
A maximum of 21 million Bitcoins can exist. Just like copper or gold, you can “mine” for Bitcoin. But instead of using shovels, it’s done by using computers to solve complex, pre-set mathematical algorithms. In reward for this problem solving, you receive Bitcoin.
As with any commodity, existing Bitcoins can also be traded on a market. If you don’t want to mine for it, you can simply buy it with cash or another cryptocurrency.
Many retailers also accept Bitcoin for payment.
Thousands of other cryptocurrencies exist. But the vast majority of them do not have the same revolutionary blockchain structure. In fact, most do not have a technological foundation and are of no legitimate value. Many are scams and rely on internet hype to defraud investors.
The complex and online nature of cryptocurrencies can make transactions difficult to trace. While many view that as a means to be free of government surveillance, it can also facilitate crime.
Further, people and businesses often think that raising capital via cryptocurrency is a way to flout investment laws. But activities like initial coin offerings and initial token offerings are subject to securities regulations. Before participating in one, you should ensure that you aren’t breaking the law.
Without question, plenty of money can be made with virtual coins. But it’s an extremely risky asset that should be approached with caution. Before investing, consider this question: do you understand the technology that underpins the cryptocurrency? If you don’t, then you cannot make an informed decision. Investing regardless would be practically akin to gambling.
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