In the past month or so, Bitcoin and other cryptocurrency have been in the news concerning volatility and price drops. For those who have invested, it can be nerve-wracking to watch these changes. For others, the idea of cryptocurrency can be difficult to understand. In this post, we’ll be explaining a little bit about what cryptocurrency is, the different types, and some things to consider.
What is Cryptocurrency?
The concept of cryptocurrency has been around since as early as 1998, but it took until after 2010 for people to start using it. Used around the world, there are many different types of cryptocurrencies. The most widely recognized of these is Bitcoin.
Simple Dollar offers a non-jargon definition of bitcoin (which can also be used to explain other types of cryptocurrencies): “Bitcoin is like virtual money where every time you spend any of it or receive any of it, that transaction is stored in many, many thousands of copies of a ledger (called the “blockchain”) to ensure that transaction is a valid one.”
Part of what makes cryptocurrency so interesting is that, unlike other currencies, it’s not regulated by the government. Rather, it’s open-source, meaning no one person or entity controls it. Once you start using cryptocurrency, you join other users in controlling its future.
Like other types of money, cryptocurrency can be used as a way to pay for goods and services. It’s not necessarily recognized everywhere- for example, you may not be able to use it at the grocery store just yet.
Back to the issue of volatility, according to the bitcoin FAQ page, since the number of people who use bitcoin is relatively small, large swings in either direction are to be expected.
What are the Different Types?
As mentioned earlier, the most popular form of cryptocurrency is bitcoin, but there are other types that use the aforementioned “blockchain” technology (what Simple Dollar described as the public ledger). There are hundreds of cryptocurrencies out there, but we’re going to take a look at the four top “altcoins” after bitcoin (according to the below chart from Coin Market Cap).
Litecoin: Stemmed from Bitcoin, faster confirmation time due to “more frequent block generation.” Also claims that it will grow faster than Bitcoin in the upcoming years.
Ripple: The biggest difference between Ripple and other cryptocurrencies is that it’s owned/controlled by a company in San Francisco, and is meant to aid financial institutions rather than act as alternative to them.
Bitcoin Cash: Similar to Litecoin, stemmed from a desire to change the direction of bitcoin, namely its capacity to process transactions (as more people joined, many thought it was important to increase this ability). Bitcoin Cash has increased its blocksize limit and hopes to continue growing.
The below graph shows an example of the different cryptocurrencies and their volatility on March 14, 2018.
Is cryptocurrency for me?
The answer depends on you. If you’re looking for a “get rich quick” scheme, this won’t work. However, if cryptocurrency and other “money matters” are something that interest you, then it might be a fun way to spend your time…and money.
As with any other financial risk, use your “fun money” or any other money you feel you could afford to lose to dabble in cryptocurrency. Also, if you’re not someone who does well watching extreme price swings, the volatility of cryptocurrency might not be for you.
Overall, the idea of cryptocurrency seems to be gaining attention and even implementation. While it is unlikely to replace government currency, it is pretty fun to watch a new way of exchanging money unfold before our eyes.