How Cryptocurrency Helps Diversify Your Portfolio for the Future

Written by: Seth Rogers
07/02/2019

cryptocurrency

Thanks to Facebook’s announcement of launching its own cryptocurrency, even those who had never given these digital assets a serious thought are now rethinking their stance. 

After all, when one of the biggest companies in the world takes something seriously, you are bound to be curious to find out what it’s all about.

And cryptocurrency is all about breaking free from the conventional banking system. It is about having more control over your assets. And it is about doing so in a completely paperless environment. 

What is a Cryptocurrency Anyway?

Simply put, a cryptocurrency is a digital currency that is cryptographically secured. Due to the way that it is programmed, it is encrypted in such a manner that makes it impossible for hackers to manipulate or duplicate its quantity. 

No matter how powerful a programmer, even a creator of a proper cryptocurrency network could get, they would be unable to just create new digital coins out of nowhere. The digital coins in circulation are created only after following relevant processes. And the same notion applies to ones that are yet to be generated. 

With that, cryptocurrencies are created with immense security in mind. It remains free of hacking issues. The assets remain as safe as they can be in an online model.

This method of operation makes cryptocurrencies an effective model of exchanging value. 

Calling All Cryptocurrencies Bitcoin is Incorrect

While the name “Bitcoin” is often used in exchange for the term “cryptocurrency”, they are not interchangeable. 

Just like conventional currencies, cryptocurrencies also exist in various forms and different names. Bitcoin is only just one of those names. It is the very first cryptocurrency of the world. But it is not the only one.

Other cryptocurrencies such as Ethereum, Litecoin, NEO, and Stellar also exist alongside Bitcoin. This is similar to how different currencies are used for value exchange. But how each of them remains different from the other. 

Some of the cryptocurrencies are simply used for value exchange. Whereas, others serve dedicated functions. 

For instance, Bitcoin is only used for store of value and overall value exchange; while Ethereum is also utilized to support the creation of applications that are relevant to its technology. 

Cryptocurrency is Built on Blockchain Technology

Cryptocurrency needs the internet to be exchanged, transferred and used. But it operates over a special connectivity module by the name of blockchain technology

It is blockchain technology that makes it possible for cryptocurrency data to be shared across a number of users securely. Whenever someone uses their cryptocurrency, shares it with another user, or receives a cryptocurrency deposit in their network account, select information is published in a log for everyone and the system to see and verify.

Any information or transaction that is performed on a blockchain network is locked and logged accordingly. Anyone could see the changes that were done on a network, only so the process remains transparent and no one could manipulate digital records. 

But while that seems simple, it is done in a way that it is extremely secure. Only those who are meant to see certain information could view it. While those who are not cannot do so. No one is able to access your account or use your funds without you sharing the access details with them.

For instance, if you are a cryptocurrency user, then only you would be able to see your account information by using a set of login credentials. Depending upon the cryptocurrency that you are using, you would be utilizing a “public key” and a “private key”. Without the private key, which is effectively a password, you wouldn’t be able to access your account at all. 

Apart from the network or system itself, no one could actually “reset” your password. No one is able to browse your funds. And no one has more authority than another user to have access to additional features.

You are also able to use “digital wallets” to store your cryptocurrency information. Offered by various platforms, these digital wallets are highly secure. They make the process of sending and receiving cryptocurrencies that much easier for the user. 

Cryptocurrencies are Very Respectable of Privacy

The list or log for value transfer information is often created publicly. But it doesn’t use your name or personal details. Only a long string of your account address is used, but that isn’t enough for anyone to track your private details. 

In fact, privacy is very important to cryptocurrency users. There are even privacy-centric cryptocurrencies in existence. Especially created, they do not share even the public address over the blockchain log. They simply remain anonymous at all fronts to maintain user privacy.

A Traditional Cryptocurrency is Free of Centralized Control

While Facebook’s cryptocurrency launch would suggest that it is just another way for corporations to print their own money, that is not the case. No one can simply create new digital coins out of nowhere. 

In a cryptocurrency model, new digital assets are created through different processes. These processes remain difficult to execute and impossible to duplicate out of one’s will. 

That is where functions such as “mining” come from. In this process, cryptocurrency users solve complex mathematical puzzles to verify transactions. That is where they earn new cryptocurrency assets as a result. This is similar to solving “Captcha” fields to make sure that an automated process is not manipulating the system. 

Not all cryptocurrencies use mining. But that and similar methods make sure that cryptocurrencies are free of a central control. Even if the creator of the cryptocurrency leaves the network, the cryptocurrency keeps on operating. That is, as long as users are interested in sustaining its operations. 

Bitcoin is a good example of this, whose anonymous creator, Satoshi Nakamoto, left right after introducing the cryptocurrency to the world. 

This self-sustainable model of cryptocurrencies ensures that the wealth invested into them isn’t gone to waste. That, once again, makes cryptocurrencies a safe investment.

The Value is Driven by Speculation

Central banks and other institutions drive the value of traditional or fiat currencies. But that is not the case for Bitcoin and other cryptocurrencies. 

Much like traditional currency, the value for a cryptocurrency is also driven by speculation. This is done through a number of factors that are the reason behind driving the value of an asset. 

But no one, not even a creator, programmer, or user, could control the price of a cryptocurrency. That is why, it remains an asset that can fluctuate on a regular basis, welcoming massive gains and noticeable losses into the picture.

You Could Easily Buy Your Own Cryptocurrency Through an Exchange

If you want to invest in cryptocurrency, then you could easily purchase it from a reputable exchange. Known as “cryptocurrency exchanges”, these special institutions exchange digital assets on a regular basis. It is similar to how regular exchanges deal in stocks.

You could use your traditional currency to buy digital currencies from these exchanges. And depending upon the exchange you choose, you could easily do so via credit card and bank transfers. 

Popular exchanges such as Coinbase and Gemini make the process to buy and store your cryptocurrency quite easy. They offer their own wallets. This way, you could store your cryptocurrency information within them while retaining total control over your assets. 

Cryptocurrencies Could Promise Great Returns, But Also Pose Some Risks

Given that they have been created recently, cryptocurrencies are still in the process of establishing their foothold in the finance industry. They are still not properly regulated. Governments and organizations such as the U.S. Security and Exchange Commission (SEC) are still working on imposing regulatory and monitory policies over their processes. 

While that happens, cryptocurrencies remain an investment option that is not mainstream at all. The fluctuation in value could be massive, which could cause you to gain a lot of funds, or lose some in the process over a matter of few hours. 

They are great for diversifying your investment portfolio. But only if you understand how they work and function. That is why, it is advised that you consider your options thoroughly before you go ahead and delve into the world of cryptocurrency. 


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