Cryptocurrency is s new way of storing value which many people believe is the way forward. It’s certainly easier than having large quantities of a physical asset such as gold. Traditional currencies such as the US dollar, known as “fiat currency” also have their drawbacks in that they are expensive to trade and can be easily tracked by governments. There are however lots of criticisms and worried about cryptocurrency and we’ll address those too. But in the interests of balance, it’s important to look at the plus sides too.
What Makes Cryptocurrency Valuable?
One of the hardest things to get your head around when thinking of cryptocurrency is why it is value, and where this value comes from. This is because we’re used to thinking of currency as notes and coins issued by the government and controlled by a central bank. In reality, a currency is anything which buyers and sellers agree to use. In the past, we’ve used cocoa beans, cowrie shells or whale teeth as currency. There are enough people around the world interested in buying and holding cryptocurrency to give it value.
Just like any other sort of investment, cryptocurrency like Bitcoin or Ethereum can rise and fall in value. The difference is that the rises and falls can be much more dramatic than with other forms of investment. Some people have made their fortune by buying cryptocurrency when it was trading cheaply, and selling at the height of the market. And conversely, people who invest when cryptocurrency is trading at high levels face losing a fortune if the value plummets. This is the other main difference with a standard currency. Invest in a British bank, and you’re covered for up to £85,000 per bank. There are no such guarantees with cryptocurrencies.
When you buy your cryptocurrency, you store it in a secure wallet. In order to transfer your cryptocurrency or use it to buy something, you need passwords known as keys. Your wallet can keep your passwords safe. This is another aspect of cryptocurrency which users must be aware of. If you forget your password on Facebook or for your banking app, you can ask for a reset through customer services. In cryptocurrency there is no owner and no customer services, and you cannot have your password reset. The story of Stefan Thomas in the US hit the headlines in 2021. He has over 7000 Bitcoin, worth £18.5k each, held in a secure wallet. He has lost the password, and has 10 guesses in total to get into the account before the system encrypts it forever, and he loses everything.
