Few sectors inspire as much confusion as cryptocurrencies.
Despite the collapse in crypto prices over the past year, it’s clear to me that we’re witnessing and participating in the birth of a new asset class… and that means there’s likely to be a lot of confusion and questions about how things work.
So today, I’m sharing some of the top questions I’ve received from readers…
Question: Is bitcoin real money?
Answer: The fundamental characteristics an asset must have to be considered money are:
- Uniformity: In other words, every “dollar” or bitcoin is the same as the next one. When you’re talking about using seashells or cows as currency, uniformity is hard to achieve.
- Divisibility: Dollars and bitcoin need to be divisible, broken up into small increments to cover a wide range of value transactions.
- Portability: Your currency must be easy to transfer and store.
- Durability: Older, agriculturally-based forms of money had a shelf life. Gold is the ultimate when it comes to durability. Paper notes deteriorate.
- Limited Supply: A currency is worthless if there’s no scarcity to it. Just consider the 100 trillion dollar note issued by the Zimbabwean government – it’s a simple reminder of what ultimately happens when governments try to endlessly print their way to prosperity.
Source: Reserve Bank of Zimbabwe
- Acceptability: To be considered money, the asset has to be widely accepted. People all over the world will take U.S. dollars. They won’t, however, take Turkish lira.
Bitcoin holds all of these characteristics with the exception of acceptability – although that is rapidly changing. Japan passed a law in 2017 that made bitcoin acceptable as legal tender.
And the digital element of bitcoin? Well, more than 90 percent of all money that exists today around the world is not even physical… it’s purely digital, existing only on computer servers.
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Question: Can bitcoin be hacked?
Answer: In certain circles, bitcoin and cryptocurrencies in general are synonymous with hacking – due to some high-profile hacks of cryptocurrency exchanges – like Mt. Gox in 2014 or Bithumb in 2017.
In a sector that’s still developing, of course there are hackers looking to exploit individuals’ inexperience, or find technological loopholes. Hackers have always – and will always – be a risk to anything where value resides on a computer network.
But bitcoin is one of the most secure assets an individual can own – it’s just that it’s 100 percent up to the individual to secure it themselves.
Cryptocurrency exchanges have been hacked. They are third-party platforms where you have no visibility as to how customers’ digital assets are being secured. That’s why we’ve said repeatedly that you shouldn’t keep large amounts of bitcoin on an exchange because when it’s on an exchange you don’t own it, they do.
And when it comes to hacking, you are far, far more at risk from other cybersecurity vulnerabilities. For example, according to the World Economic Forum, over 4.5 billion records were compromised in the first half of 2018, up from 2.7 billion records for all of 2017. This translates to over a million records lost or stolen every hour.
So there’s no use worrying about bitcoin “hacking” when you can take full personal control and accountability for securing it yourself (rather than be at the mercy of an incompetent third party).
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Question: Will bitcoin be volatile going forward?
Answer: Most people look at bitcoin’s daily price changes and write bitcoin off simply because it’s more volatile than your typical blue-chip stock. But even with this level of volatility, bitcoin delivered better risk-adjusted returns than stocks, bonds, gold and real estate over the past five years.
I’m not saying bitcoin won’t be volatile. Like any asset, cryptocurrencies will continue to experience rallies and corrections. But over the long term, the upside is far from over. You just need to proceed carefully. And “invest” no more than you can absolutely afford to lose.
Question: Can a few hundred dollars be invested to buy a fraction of bitcoin itself?
Answer: Bitcoin is divisible down to eight decimal places. The term “bitcoin” is just a unit of measurement. This is the same for nearly all crypto assets. So, for example, you can buy 0.1 bitcoin or more… or less.
These are just a few of the top questions I get about cryptos. As I said, it’s an entirely new asset class. And it can be confusing.
But you don’t have to wade through the crypto space alone. That’s why we created Crypto Capital.
In my newsletter, I find the best opportunities… walking you through how to buy, store and sell them through my guides and videos… and answering any questions you have along the way. You can learn more about Crypto Capital – and some extraordinary opportunities that we’ve identified that extend well beyond bitcoin – right here.
P.S. If you want to make big money in cryptocurrencies, it’s urgent that you get in right away. That’s why, in my recent report, I explain the big event happening soon in cryptocurrencies. It could cause a massive amount of money to flow into the space – and some cryptos could soar 100x. You can get the full story here.