Cryptocurrency and bitcoin are the new funny money. Specifically, it’s a form of digital payment exchanged online. Many companies issue their own currencies (tokens) which are only used with that specific company. For example, using them is similar to using arcade tokens or casino chips. You purchase cryptocurrency with real currency.
Cryptocurrencies work using blockchain technology. This is decentralized technology spread across many computers that manages and records transactions. Part of it’s appeal is its security.
Reasons why Cryptocurrencies are so appealing:
Supporters see cryptocurrencies such as Bitcoin as the future of currency and are racing to buy them now, presumably before becoming more valuable.
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since, over time, these banks tend to reduce the value of money via inflation.
Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.
Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
Buying the New Funny Money
Before purchasing in an Initial Coin Offering (ICO), read the prospectus’ fine print for this information:
Who owns the company? An identifiable and well-known owner is a positive sign.
Are there other significant investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency.
Will you own a stake in the company or just currency or tokens? This distinction is significant. Owning a stake means you participate in its earnings (you’re an owner). Buying tokens allows you to use them, like chips in a casino.
Does the currency already exist, or is the company raising money to develop it? The further along the product, the less risky the investment.
To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Ethereum.
Diversification is vital in every retirement plan. If you’re interested in cryptocurrencies, we encourage you to seek viable resources for your own specific information.
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Avantax affiliated financial professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
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