Despite how widespread the cryptocurrency boom has been, there are still plenty of people who don’t even really know what it is or what it’s useful for. If you’re one of them, then don’t worry; you’re in very good company indeed. By its nature, cryptocurrency can feel secretive and difficult to understand – after all, it contains the word “crypto” in its name, which immediately makes it feel like a clandestine, covert spy op concept.
Of course, cryptocurrency actually isn’t all that difficult to understand. To some, it’s poised to revolutionise the financial world; everything from governmental transactions to personal loans could soon be undertaken with cryptocurrency instead of more traditional fiat currencies. To others, it’s a bad investment that could see you significantly worse off. Let’s take a look at what exactly cryptocurrency is and whether investing in it is a good idea.
So, what is cryptocurrency?
Let’s start at the beginning. Cryptocurrency, in its simplest definition, is a form of currency that doesn’t require a central authority, like a bank or a financial institution, to regulate it. Instead, regulation is done through digital ledgers, normally blockchains, that independently verify cryptocurrency ownership and transactions.
If that’s already a little difficult to wrap your head around, just imagine a form of currency where there is no central bank, no governmental authority, and no single organisation that controls things. There’s more to it than that, but essentially, that’s what you’re dealing with when you talk about cryptocurrency.
Is cryptocurrency actually currency?
There’s some debate around whether cryptocurrency can actually be called currency in the standard sense. As Forbes points out, cryptocurrency doesn’t actually fulfil many of the criteria we used to determine what money is. Forbes identifies three areas where money is successful: account, exchange, and value.
Bitcoin, which is currently one of the most popular and well-known cryptocurrencies, doesn’t satisfy any of these criteria, because people don’t measure their wealth in it, bitcoin isn’t accepted in many places around the world, and it fluctuates often in price terms. Other cryptocurrencies work in a similar fashion.
While cryptocurrency may not hold traditional currency status, it is still being used for transactions and traded between different entities and organisations, so we can think of it as a sort of unofficial currency. Some have suggested that cryptocurrency should be considered an asset or a security rather than a currency, but that might be harder to understand for those who aren’t invested in the financial world already.
Is cryptocurrency stable?
To put it simply, no. Cryptocurrency is not stable right now. If you take a look at market fluctuations for cryptocurrency over the last few years, you will see huge price fluctuations that often depend entirely on a single person’s tweet. In 2021, Elon Musk tweeted a meme about breaking up with cryptocurrency, which caused a several-percent drop for bitcoin, dogecoin, and ethereum on the markets.
Despite the volatility of cryptocurrency, there’s currently an alternative that some people believe will eventually replace standard crypto. Stablecoins are, according to Investopedia, a type of cryptocurrency that is still minted on the blockchain but that is also tied to an existing commodity or currency, like the US dollar or gold. In that way, stablecoins are much more similar to classic currencies.
Will cryptocurrency ever be mainstream?
On the face of it, this could be a hard scenario to imagine. After all, everyone pays for their goods and services with regular currency right now, and it’s hard to think of a benefit for daily life that cryptocurrency could bring. Sure, it’s not centralised, but that’s just as likely to make regular folks suspicious as it is to get them excited.
To put it simply, right now, we can’t imagine that cryptocurrency will ever “go mainstream”. It’s pretty much restricted to the more tech-oriented fringes of society. Conversations around crypto are generally focused on market value and trading rather than everyday functionality, and if that conversation ever shifts, then fiat currencies might need to start worrying. Until then, though, you’d better hold on to the US dollars in your pocket.
So, after all that, is it safe to invest in cryptocurrency?
This is a somewhat complex question. It’s technically not really safe to invest in anything; the value of your investments can, as many advertisers and marketing strategies are eager to tell you, fluctuate massively, and what looks initially like a strong investment can tank just as quickly as it rose.
Even by the standards of regular investments, though, cryptocurrencies feel particularly dangerous. If you’re an enterprising investor with a little money to burn and you don’t mind potentially losing it, then cryptocurrencies could be a good investment to show you’re daring and love to take risks.
However, if you want a more stable investment that’s not quite so variable, crypto probably isn’t where you want to put your money. Consistent value just can’t be guaranteed in the world of cryptocurrency right now, so you’re better off saving for a time when it can, if such a time could ever come.