Cryptocurrency can be a confusing topic for the uninitiated, but all it takes is a little explanation to begin to understand this digital currency and its ramifications for online buying and investing.

Digital or virtual currency has been around since the early 1990s, but has become more common since the rise of the internet, smartphones and app technology, as well as online shopping. Simply put, it is the transferring of money online, and makes it possible to bank and purchase online. Often, it is linked to or represents fiat currency – money that is issued by a government, such as the U.S. dollar or the euro.

Cryptocurrency is a type of digital currency, with the “crypto” referring to the special way this kind of currency is kept secure. It is decentralized and not tied to a specific issuing government.

“At its simplest, it’s just a digital currency that is outside of central banks, that is proven up through this mining, which is a complex series of mathematical calculations,” explains Brad Scrivner, CEO of Vast Bank, based in Tulsa.

Bitcoin, the first cryptocurrency, came onto the scene in 2009, shrouded in a bit of mystery as the person or persons who created it is/are still unknown. But Bitcoin was unique in the digital currency playing field because of its truly peer-to-peer nature; it was completely decentralized.

“Most cryptocurrencies use a ledger system to record digital transactions in a way that is decentralized, publicly validated and permanently recorded,” writes Jesse Carlucci, Ph.D., in an online article for Arrow Investment Management, where he’s CEO and CIO. “This blockchain technology is already widely used in a variety of ways and has thousands of use-cases across many different industries.”

Bitcoin and other forms of cryptocurrency can be used as an investment tool. But there are benefits and pitfalls to be aware of, as with many investment choices. 

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“You have people getting involved in [cryptocurrency] for different reasons. Some people are scared about inflation, and so they’re using cryptocurrency as a store of value, similar to gold,” says Scrivner. He also mentions that some people and companies use it for a faster, cheaper way to transfer assets, as well as those who are jumping in for speculation, as they see an asset appreciating greatly in price.

Carlucci mentions in his article that “there are some serious security concerns around holding cryptocurrencies in online wallets. In 2020 alone, billions of dollars were lost to hacking and cybersecurity failures.” 

Scrivner continues: “This is a volatile asset. The use-cases are still being developed, it’s still maturing.” So, it remains to be seen where cryptocurrency will go in the future.

There are some other options for dealing in cryptocurrency on the horizon. Vast Bank has recently made an announcement along these lines.

“We are the first national bank to, out of a single bank account, your bank account, be able to purchase and sell and custody cryptocurrency,” says Scrivner.

Ultimately, as with most investment decisions, it is important to do your research and speak with a professional to find out if cryptocurrency is the right investment choice.  

Definitions to know

Altcoin – Cryptocurrencies other than Bitcoin
Bitcoin – A type of cryptocurrency
Blockchain – A type of database that organizes information into chunks, or blocks, chained together chronologically
Cryptocurrency – Digital currency secured by mathematical equations
Digital currency – Currency that exists purely in a digital format, but can represent fiat currency
Fiat currency – A centralized currency like the U.S. dollar or the euro
Mining – The solving of mathematical computations that support cryptocurrency
Public and private keys – Public keys are the public address that people use to send bitcoin to. Private keys are known only to the account holder to authorize transmissions.
Source: Investopedia