Cryptocurrency was once a foreign concept to most people not too long ago, but within the past decade, it has now expanded to new heights. With 300 million people utilizing cryptocurrencies globally and 46 million Americans invested in Bitcoin, cryptocurrency has gained popularity globally. This past week, I had the opportunity to sit down with South Dakota State University economics professor and Dakotaland FCU board member, Dr. George Langelett, and was able to learn more about the background of cryptocurrency and things to know before getting started.
Dr. Langelett defines cryptocurrency as, “A secure, alternative payment method that would be comparable to an accounting ledger.” Originating in 2009, Bitcoin was the first cryptocurrency, created by Satoshi Nakamoto. Nakamoto wanted a decentralized, transparent currency, so he first created the blockchain technology, and then came Bitcoin. In the early stages of Bitcoin, it was only worth pennies, but after a while, people began to realize the true value. Ultimately, the value of Bitcoin, or any crypto currency for that matter, goes back to basics of economics- supply and demand.
One of the most common misconceptions about crypto is that we should invest in it, similarly to the stock market; however, cryptocurrency was never intended to be an investment, but instead a mode of safe, anonymous transactions. The blockchain technology that Nakamoto created was to ensure the legitimacy and authenticity of both parties involved in the transaction. Once the transaction is initiated, both parties are authenticated by third party verifiers, to ensure a secure transaction. Once the transaction is verified, it is permanently placed on the blockchain. The blockchain is anonymous, but crypto is most beneficial to those wanting to enact a secure transaction.
Before diving head first into the cryptoverse, there are a few things to take note of. Crypto transactions do have some transaction fees, and they are also a part of a decentralized, unregulated market. In the US, having a decentralized market does not make as big of an impact, but in poorer countries, purchasing crypto within a decentralized market is very beneficial to their citizens, as some countries have corrupt financial institutions. There is no one licensed in the buying and selling of crypto, so make sure you are aware of what you’re getting yourself into before beginning your first transaction. Just like any investment, it’s all about your risk tolerance, so if you’re a little more risk averse, Dr. Langelett would suggest starting out small.
When I asked Dr. Langelett about the financial takeaways of crypto, he described it as, “It’s a good chance to become a millionaire, and it’s a good chance to lose all your money. The currency itself has no intrinsic value, other than its ability to facilitate transactions.” If you are interested in investing in crypto, Dr. Langelett suggests investing a small amount, roughly $100, for three months to learn the ropes. Watch and learn during that time, because it’s a completely different investment mechanism that can be quite treacherous. Stick to small amounts, until you feel confident and knowledgeable. Remember that it is not meant to be an investment, so stay cautious and aware that you may not receive a return. Think of the cryptocurrency as “electronic dollars,” and just like any investment, make sure to only invest as much as you’re willing to lose.
If cryptocurrency peaks your interest, check out this article businessinsider.com/what-is-cryptocurrency found on Business Insider to learn more about the basics and do’s and don’ts of investing in cryptocurrency.
