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Does it feel like everyone is talking about cryptocurrency right now? Yes. Do you have any idea what they’re talking about? If you’re being honest, chances are probably not.
But that’s okay because it’s never too late to learn. While cryptocurrency certainly grew in popularity over the last few years, it’s still fairly new and there are still plenty of opportunities for newbies to get caught up and involved.
To help get you started on a few crypto basics, read on below for the answers to two critical questions: What is cryptocurrency and should you have some?
What Is Cryptocurrency?
Let’s start with the popular phrase spoken in classrooms around the world: There is no such thing as a dumb question. So, if you’re thinking, “Is crypto, like, a real thing I can touch and hold?” don’t be ashamed. It’s a fair question. Just so everyone is all clear, cryptocurrency isn’t money that you can hold in your hand like a dollar or a quarter. Rather, it’s a totally digital form of currency that you can track when you have an account with an online platform or broker that offers cryptocurrency trading.
With that out of the way, let’s get into some of the different kinds of cryptocurrencies. “The two most popular types of crypto are Bitcoin and Ethereum,” explains Brian Baker, an investing reporter at Bankrate. “There are many others as well, like Tether, Cardano and even Dogecoin which started as a joke,” he adds.
From that list, Bitcoin probably sticks out. That’s because it was one of the first cryptocurrencies introduced and is now one of the most popular. “One of the reasons Bitcoin has gotten so much attention is because the price has increased an enormous amount. Any time that happens, it’s going to get a lot of attention,” Baker explains.
Bakers goes on to say that many governments are skeptical of cryptocurrency, due in part to its connection to illegal activities. Because of this, it’s not all that likely that cryptocurrency will replace traditional payment methods any time soon.
That said, crypto is a really popular investing approach right now. “For a lot of people crypto is a trading vehicle,” Baker explains. “There’s been a huge amount of price appreciation in Bitcoin and other cryptocurrencies. People see the price is going up and they think it’s going to keep going up.”
Technically speaking, when you’re trading Bitcoin or other cryptocurrency, you’re not investing. “People who are new to this should understand Bitcoin and other cryptocurrencies have no intrinsic value, meaning they don’t produce anything. When you buy them, you’re hoping the price will continue to rise and that’s really not investing, that’s speculating,” Baker explains. “When you purchase a stock, those companies have underlying earnings and those earnings will increase over time and that will support the performance of the stock over time. You don’t have that with cryptocurrency.”
Do You Need Cryptocurrency?
Now that you have a clearer picture of what crypto is and how it’s used, you can ask yourself if you need cryptocurrency.
The short and simplest answer? No, you probably don’t need any crypto at this time. According to Baker, “most people are just fine not owning any crypto and should stick with traditional investments like stocks and bonds.”
This is especially true if you aren’t in a position to take on huge risks with your money right now. “If you are someone who is risk averse and the most important thing is making sure your money is there when you reach for it, I wouldn’t recommend crypto at all,” Baker says.
If, on the other hand, you have money to play with, can afford to speculate and are interested in crypto, then go for it. Still, Baker recommends keeping crypto as a small percentage of your overall portfolio. He also warns that when you get involved with crypto, you should always be prepared for the possibility that you could lose your investment.
Understanding the risks, if you’re still interested in exploring the world of cryptocurrency, here are a few online brokers to check out when you’re ready to get started:
- Coinbase. This platform specializes in crypto trading, and allows users to purchase more than 30 different types of cryptocurrency.
- Robinhood. Another popular option, this online broker offers commission-free crypto trades, plus you can buy Bitcoin directly here.
- Public. This platform offers zero-commission, open-to-the-public investing options.
- SOFI. This mobile-first platform offers both investing and banking options.
Still have crypto questions? Head over to Bankrate.com to learn more.