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Take a look at some recent headlines about cryptocurrency — they’re an absolute roller coaster:
“.” “.” “.” “” “.” And my personal favorite: “.” (Yep. Bullish and bearish … that’s not particularly helpful.)
Dizzy yet? Here’s what we think you should know about it … and why it’s not part of your Ellevest investment portfolio.
Cryptocurrency and blockchain: The explainer
That root — “crypto” — means “secret” or “hidden.” In the context of cryptocurrency, it really means anonymous (or almost anonymous, depending on how the currency’s set up). Cryptocurrency is a form of money that a) isn’t issued by a central authority, like a government, and b) uses cryptography — the practice of storing and transmitting data for secure communication. Bitcoin is the best-known cryptocurrency, but definitely not the only one.
You might have also heard the word “blockchain.” In the context of cryptocurrency, that’s a public record of past transactions: Every time someone completes a transaction, it gets recorded in a “block” and added to the “chain” of transactions. Then the algorithms make sure the record can’t be altered.
Crypto and blockchain go together, but they aren’t the same. Think of it like this: With US dollars, you know how much money you have in the bank because the bank keeps track of it for you … and the government keeps track of how much money the banks have.
Instead of relying on banks and governments, cryptocurrencies use a blockchain. The full blockchain from the beginning of time is publicly recorded and unchangeable — which means everybody’s computer agrees on every single transaction that ever happened. All of that makes fraud pretty damn hard.
Blockchains as a ledger system could be used for keeping track of anything from to to , which is why some people believe blockchain has the potential to disrupt — not just crypto.
So, cryptocurrency = the money, and blockchain = the accounting system.
Why do people invest in cryptocurrency?
Investing in cryptocurrency may feel like investing in any foreign currency: You exchange your US dollars for that currency, hope that its exchange rate moves favorably, and, if it does, turn it back into US dollars so that you (hopefully) have more money than you started with.
The difference is that cryptocurrency isn’t tied to a country’s economy. It’s independent from any central authority, and its value moves — sometimes really fast. This means if you time it right, you can make a lot of money. But that’s a big, fat, hairy “if.” Because you can also lose a ton. Putting your money into cryptocurrency isn’t investing, it’s gambling.
Investing vs. speculating
If you’re drawn to the thrill of the cryptocurrency chase and have money set aside just for risky purchasing that you’re prepared to lose, then by all means, have fun. But we believe that investing, not speculating, has a greater chance of success in the long term.
We’re also , which means we’re legally required to act in your best interests. That’s why we don’t do things like try to time the markets, try to pick “winner” individual securities or sectors, or bet on factors like momentum or size when we choose investments for your portfolio. Because doing those things — and therefore underperformance … and who employ these tactics underperform compared to the market overall.
It’s also why we don’t include cryptocurrency in the investment portfolios of any of our clients. We cannot — and will not — allow the outcome of your financial goals to be influenced by pure speculation.
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What you need to know about managing your financial health during the coronavirus pandemic. Plus fact-based opinions and women supporting women. Delivered 3x a week.
“.” “.” “.” “” “.” And my personal favorite: “.” (Yep. Bullish and bearish … that’s not particularly helpful.)
Dizzy yet? Here’s what we think you should know about it … and why it’s not part of your Ellevest investment portfolio.
Cryptocurrency and blockchain: The explainer
That root — “crypto” — means “secret” or “hidden.” In the context of cryptocurrency, it really means anonymous (or almost anonymous, depending on how the currency’s set up). Cryptocurrency is a form of money that a) isn’t issued by a central authority, like a government, and b) uses cryptography — the practice of storing and transmitting data for secure communication. Bitcoin is the best-known cryptocurrency, but definitely not the only one.
You might have also heard the word “blockchain.” In the context of cryptocurrency, that’s a public record of past transactions: Every time someone completes a transaction, it gets recorded in a “block” and added to the “chain” of transactions. Then the algorithms make sure the record can’t be altered.
Crypto and blockchain go together, but they aren’t the same. Think of it like this: With US dollars, you know how much money you have in the bank because the bank keeps track of it for you … and the government keeps track of how much money the banks have.
Instead of relying on banks and governments, cryptocurrencies use a blockchain. The full blockchain from the beginning of time is publicly recorded and unchangeable — which means everybody’s computer agrees on every single transaction that ever happened. All of that makes fraud pretty damn hard.
Blockchains as a ledger system could be used for keeping track of anything from to to , which is why some people believe blockchain has the potential to disrupt — not just crypto.
So, cryptocurrency = the money, and blockchain = the accounting system.
Why do people invest in cryptocurrency?
Investing in cryptocurrency may feel like investing in any foreign currency: You exchange your US dollars for that currency, hope that its exchange rate moves favorably, and, if it does, turn it back into US dollars so that you (hopefully) have more money than you started with.
The difference is that cryptocurrency isn’t tied to a country’s economy. It’s independent from any central authority, and its value moves — sometimes really fast. This means if you time it right, you can make a lot of money. But that’s a big, fat, hairy “if.” Because you can also lose a ton. Putting your money into cryptocurrency isn’t investing, it’s gambling.
Investing vs. speculating
If you’re drawn to the thrill of the cryptocurrency chase and have money set aside just for risky purchasing that you’re prepared to lose, then by all means, have fun. But we believe that investing, not speculating, has a greater chance of success in the long term.
We’re also , which means we’re legally required to act in your best interests. That’s why we don’t do things like try to time the markets, try to pick “winner” individual securities or sectors, or bet on factors like momentum or size when we choose investments for your portfolio. Because doing those things — and therefore underperformance … and who employ these tactics underperform compared to the market overall.
It’s also why we don’t include cryptocurrency in the investment portfolios of any of our clients. We cannot — and will not — allow the outcome of your financial goals to be influenced by pure speculation.
Don’t miss an update
What you need to know about managing your financial health during the coronavirus pandemic. Plus fact-based opinions and women supporting women. Delivered 3x a week.
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