Cryptocurrency is defined as “a digital currency or decentralized system of exchange that uses advanced cryptography for security.” That’s the formal definition, but does it really explain what this mysterious entity is all about and why so many are infatuated with it? We’ll talk about that today with Jerry Bowyer.
Jerry Bowyer is an economist and MoneyWise contributor.
- Bowyer explains that the idea of crypto is that it’s encrypted. The person who has the “key,” which is a number, has control of it. They can spend it or give it away, but no one else can access it without they key number.
- The main proposition of cryptocurrency is that, unlike paper currencies, it’s not infinitely inflatable. A country can print an unlimited amount of currency. In contrast, with Bitcoin, for instance, there is built into its algorithm a rule that it can never print more than 21 million Bitcoins. So it can serve as a hedge against debasement of currency.
- CRYPTO AS AN INVESTMENT
- However, Bowyer says the data does not indicate that cryptocurrency is an effective hedge against inflation. And there are many concerns with cryptocurrency as an investment class.
- First, most people don’t understand it, and you should never invest in something you don’t understand.
- Beyond that, cryptocurrencies are very risky investments. That doesn’t mean that Christians should never invest in them. But it’s important to understand the risk involved and to not invest more into cryptocurrencies than you can afford to lose.
- With crypto, there is at least slight risk of falling victim to hackers. Hackers have made off with billions of dollars in virtual assets in the past year by compromising some of the cryptocurrency exchanges that have emerged during the bitcoin boom. There have been more than 20 hacks in 2021 with thieves stealing at least $10 million in digital currencies
- CRYPTO VOLATILITY
- Crypto is also risky because of its wild volatility.
- When people talk about cryptocurrency, they usually mean Bitcoin. It’s the 500-pound gorilla. How has Bitcoin performed over the past year?
- Bitcoin started 2022 nearly twice as valuable
as it was in January 2021. But before January ended, it had nearly lost all of the previous year’s gains. It’s now selling at around $30,000. So far, a lackluster performance in 2022.
- But Bitcoin is far from the only cryptocurrency.
- There were over 18,000 cryptocurrencies in existence as of March 2022. According to Bankrate, the three most popular are:
- Bitcoin (BTC) Price: $29,155. Market cap: $557 billion. ...
- Ethereum (ETH) Price: $1,797. ...
- Tether (USDT) Price: $1.00.
- CRYPTO PRIVACY
- Some see cryptocurrencies as a godsend for many concerned about the loss of privacy. But is that really the case?
- Bowyer says not really. Bitcoin, the original cryptocurrency, was designed to enable transactions using only digital identities and without the intervention of a trusted third party, like a bank.
- Bitcoin’s introduction in early 2009, when the global financial crisis had decimated trust in governments and banks, was perfectly timed with a growing aversion to these big institutions.
- But it turns out that cryptocurrencies, in fact, do not guarantee anonymity. Users’ digital identities can, with some effort, be connected to their real identities.
- And in an ultimate irony, the revolution that bitcoin started could end up destroying whatever privacy is left in financial markets. Iit threatens to give big corporations and government a better view into our financial lives and greater control over how we spend our money.
- In summary, don’t invest in cryptocurrency if you don’t understand it. And if you do, devote only a small portion of your investment portfolio to this incredibly risky investment class.
- You can read Jerry Bowyer’s informative articles at TownHall.com.
On this program, Rob also answers listener questions:
- How should you go about paying down a large amount of debt?
- What should you do if you find a used car that suits your needs but the dealer says they won’t accept an outright payment and requires financing?
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