While the introduction of cryptocurrencies occurred nearly 9-year ago in 2009, the concept only became mainstream in the investment community in 2017. The surge in Bitcoin, the most actively traded digital currency, hit all-time highs in 2017, moving above 19K. This catapulted cryptocurrencies into main stream media. In addition to Bitcoin, other crypto currencies have evolved with many having different purposes.
What is a Crypto Currency?
A Crypto Currency is a digital storage of wealth that in some cases can be used to barter for goods and services. Crypto Currencies differ from sovereign currencies like the U.S. dollar in that there is no central bank that controls its distribution and value. Cryptocurrencies are mined and evaluated by the masses to verify their existence.
The lack of a central bank to verify the value and distribution of a currency has pros and cons. Stability can become an issue as there is no central body that will defend the value of the currency if the market depreciates it.
How Do You Store a Crypto Currency?
Crypto Currencies are stored in digital wallets which are similar to banks. Most wallets allow you to swap your Crypto Currency with other digital currencies, as well as other sovereign currencies such as the dollar or the euro. There are several wallet companies, many that are regulated in specific countries. For example, Coinbase is the largest wallet, and is regulated by the U.S. government. The signup process is rigorous, as they will ask you for multiple forms of identification and if you’re in the US, your social security number. You will have to provide proof of residence and state identification. Separately, there are investment vehicles that will allow you to track the price of crypto currencies including futures and are cleared through the Chicago Mercantile Exchange. Additionally, there are many reputable forex brokers that provide securities that track the price of several cryptocurrencies.
Are Crypto Currencies Safe to Trade?
Regulators have been active in verifying the viability of cryptocurrency trading. The introduction of Bitcoin futures has allowed the Securities and Exchange Commission to obtain oversight of these products. In addition, the Federal Reserve is involved in overseeing Coinbase. The FAS in the UK has oversight over several wallets and European regulators are actively involved in verification.
How Many Crypto Currencies Are There?
Bitcoin was the first cryptocurrency introduced into the market and their head-start has allowed them to generate the largest market cap. Following Bitcoin is Ripple and Ethereum, which focus on different markets. Ethereum is a block chain based payment system that allows for the use of smart contracts. Ripple has been considered by many retailers as the verification process in creating the coin is considered to be less onerous and faster than bitcoin. There appears to be no end to coin introduction. Initial Coin Offerings continue to attract investors who are looking for the next Bitcoin. Many of these coins will evaporate, but a few will likely become long term investments that last for years. The key is scalability and trust. Consumers want to know they own a product that will not evaporate, that is easy to spend and save as well.
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