Cryptocurrency has been one of the hottest topics in finance over the past few years. Virtual currencies like Bitcoin, Ethereum and Ripple have seen wild swings in value, making some investors very rich and leaving others with worthless digital coins. While cryptocurrency is a fascinating new technology, it’s still largely misunderstood and unproven. For most people, the risks far outweigh the potential rewards.
Cryptocurrency is decentralized digital money designed to be secure and, in many cases, anonymous. It’s not tied to a bank or government and allows users to spend money directly without transaction fees. Advocates argue that cryptocurrency will disrupt existing currencies and the banking system. However, cryptocurrency is extremely volatile and risky. The value of coins can drop sharply in a matter of hours, and regulators worry about fraud and money laundering.
Bitcoin is the most well-known cryptocurrency, but there are more than 1,500 different virtual currencies. Bitcoin’s value skyrocketed in 2017, only to crash in 2018. The price changes can be dizzying—in one day in April, Bitcoin plunged nearly 15% before rebounding. Widespread adoption of cryptocurrency is still a long way off. Relatively few retailers accept cryptocurrency, and it’s rarely used for real-world transactions. For now, cryptocurrency feels more like gambling than actual money.
While blockchain technology, which powers cryptocurrencies, could ultimately have a huge impact, cryptocurrency itself poses too much risk for most investors. The virtual coins are too volatile and vulnerable to fraud. In many cases, the only thing backing a cryptocurrency is the belief that it has value. When that belief collapses, the coin can quickly become worthless. If you do invest in cryptocurrency, only risk money that you can afford to lose. The hype around virtual currencies far outpaces their real-world utility—for now, at least. Cryptocurrency may eventually prove truly revolutionary, but we’re not there yet. For most people, it’s still not worth the hype.