Bitcoin, Ethereum, Litecoin… all words none of us had probably heard of five years ago but are starting to show up more and more in the news. These are all forms of cryptocurrency and the goal of this article is to give you a high-level understanding of cryptocurrency.
Simply stated, cryptocurrency is a new form of digital money. It can be used to buy goods and services online just like one would use the U.S. dollar. Cryptocurrencies are not widely adopted at this time, but some of the big names that are accepting Bitcoin as payment include Microsoft, Starbucks, and Home Depot. We want to stay on top of this trend for you as more big brand names start accepting crypto payments.
The underlying concept that makes cryptocurrency attractive is the blockchain. The blockchain is decentralized, meaning no single entity is in charge of it. The blockchain is made up of hundreds of thousands of users that verify every transaction that is made on the blockchain, as opposed to one authority in charge of verifying transactions like a typical bank. When making transactions with traditional money, a middleman like a bank or payment service takes a cut. The blockchain allows cryptocurrency users to cut out the middlemen on their transactions, saving them money. This is one of the greatest benefits of cryptocurrency.
The greatest risk involved with cryptocurrencies right now is the lack of regulation. The stock and bond funds most investors own in their retirement portfolios are regulated by many organizations including the Securities and Exchange Commission (SEC), Department of Labor (DOL), and Financial Industry Regulatory Authority (FINRA). This allows investors to invest with confidence. It is like having a lifeguard at the beach keeping an eye on everyone. There is no lifeguard when it comes to cryptocurrency. It is the responsibility of the owner of the cryptocurrency to understand what they have. Many have fallen prey to scams because to the this lack of oversight. Also due to this lack of regulation, accounts with Harford Financial Group cannot invest in cryptocurrency at this time.
If you are interested in investing in cryptocurrency, we strongly advise you to do your homework. It can be extremely volatile investing in some of the big name cryptocurrencies, not to mention the lesser known ones. This is an area we will continue to research and stay on top of for our clients.