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One: What exactly is cryptocurrency?
It’s a virtual currency that’s created by encoding strings of data into units of currency. Unlike the U.S. dollar, it’s not issued by the government, it’s not regulated, and it doesn’t have a physical form. It’s like buying virtual tokens or credits that you can only use in certain places — and that you can’t necessarily cash out when you want to.
Two: Why are people buying?
As with any hot investment fad, there are lots of different reasons people might invest in cryptocurrency. Some companies invest in it as a way to hedge against inflation. Some investors like that it’s fast, confidential, and has low fees. Some like the idea of taking currency creation away from the government. Some folks are speculators hoping to use the wide swings in value to profit.
Three: What do you need to watch out for?
Here’s where you want to be careful. Cryptocurrency is risky for several reasons. It’s a new market and extremely volatile — investing in this market is definitely a gamble. Also, since cryptocurrencies aren’t regulated, they aren’t protected by the FDIC or any government body. This makes them a prime target for hackers and scammers.
Another risk factor? If you lose or forget your password, you can get locked out of your digital wallet for good.
In fact, there’s about $140 billion in bitcoin that’s currently inaccessible because it’s stuck in stranded or locked wallets.1
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