A cryptocurrency is a medium of exchange, such as the US dollar, but that uses cryptography to secure transactions instead of relying on central authorities. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.
How does Cryptocurrency work?
To transact with a new cryptocurrency, you need a public address and an individual’s private key (also known as “a coin’s seed phrase”). The key is like a password that allows you to access and spend funds in your account on the blockchain.
Why invest in Cryptocurrency?
Several factors influence the long-term investment potential of Cryptocurrency:
1. The medium of exchange concept. Cryptocurrencies have little intrinsic value but represent an alternative way to store, send and receive discounts – an alternative to the dominant fiat currency systems we all use today. “The stock market” is a traditional way to compare two companies based on their business performance. Cryptocurrency is a way to compare the performance of two cryptocurrencies; it’s essentially a comparison of the ability to store value.
2. The deflationary aspect of Cryptocurrency. It is one of its most significant points of appeal and something that the mainstream investing world has underestimated. The short-term volatility in the price of cryptocurrencies is often portrayed as a negative aspect; however, it makes them more attractive for long-term investments due to their highly deflationary properties. As well as having historical low rates of inflation, Cryptocurrency has negative inflation rates for holders, too – allowing your investment to grow without losing money over time.
3. Cryptocurrencies can be used for speculative purposes, too. While some other currencies have more speculative qualities, the nature of Cryptocurrency makes them better suited to speculative investing and trading. Cryptocurrency is ‘gold 2.0’ in many ways; as well as being a means of exchange, it is also a store of value. It means you can also use it to protect your money from inflation and deflation; it was designed for this purpose.
4. Cryptocurrencies offer a much more decentralized way to store and transfer value, one that does not have a central authority controlling and manipulating its supply – something we have all seen in fiat currency systems before and been subject to – such as central banks devaluing their currency or hyperinflation.
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