Although bitcoin was created in 2009, it's only become well-known in recent months. In early 2017, bitcoin was trading around $1,000. In March 2018, its value stood at $10,000. That ascent prompted interest in cryptocurrency, with people navigating currency and investment more differently than ever before.Digital currency isn't regulated, making cryptocurrency-investing risky in contrast to the stock market. Regulators around the globe have warned about the speculative nature of bitcoin and announced increased oversight.Still, it's difficult to ignore the rise in the price of bitcoin and the attention cryptocurrency is now getting in the press. There are even products focused on the alternative currency, giving novice investors access to this booming market. But all this attention begs the questions, "What's this all about?" and "What are its risks?"
What You Need To Know About CryptocurrencyBitcoin Takes Out The MiddlemanBitcoin was created with the aim of taking the middleman (namely banks) out of the equation. Transactions are anonymous and usually have no fees associated with them. And because the coins aren't tied to any country, they aren't subject to government regulations, making them cheap and easy to engage in international payments.
Bitcoin works thanks to the technology that underpins it -- blockchain, a digital ledger, where transactions are recorded in chronological order for the public to see. It's used to store an online ledger of transactions that take place using bitcoin. It's also unregulated and transparent.
Legitimacy Has Raised Bitcoin PricesThere are many theories as to why bitcoin has surged so much in 2017 and has since become volatile in 2018. An overarching theme is its growing legitimacy. Now, even morning shows are talking about cryptocurrency when only technology aficionados knew of it. Earlier this year, the currency got a big boost when Japan recognized bitcoin as a legal method of payment.Government validation isn't the only thing that is driving the price of bitcoin higher. New investments, like cryptocurrency funds, have appeared online. Some startups even raise funding by issuing initial coin offerings. Instead of selling stock, they're selling bitcoins, bringing in hundreds of millions of dollars in investments.Hard forks are another reason the value of cryptocurrency will keep rising. This occurs when a blockchain splits into two after new rules are introduced, creating a second cryptocurrency. All of the past transactions remain on both blockchains, but new transactions do not. Bitcoin cash was the result of a hard fork, creating billions of dollars in market cap out of the gate but losing more than half in the following days. There are more hard forks coming and investors should be getting ahead of them.
There's A Real Risk Of Losing It AllTo say that investing or accepting bitcoin is risky is an understatement. Because it isn't regulated and is anonymous, it is considered to be speculative and extremely volatile. This is exemplified by bitcoin's price plummeting this past fall, only to set new record highs weeks later and then come back down at the start of 2018.Price movements are the biggest risk to the future success of bitcoin, with many influencing factors. Increased regulatory scrutiny is a big one: Investors have adjusted to governments around the world cracking down on cryptocurrency, but it's no guarantee that they always will. If regulations get too stifling, it could send the value of bitcoin and other cryptocurrencies plummeting.
Meanwhile, hundreds of startups are offering investors cryptocurrency in exchange for capital. Some investors get stuck with tokens they can't cash out. The Financial Industry Regulatory Association urges investors in ICOs to make sure that their trade clearly states how they'll get the money back, if they can cash in tokens for a refund or whether or not they can resell the coins in the secondary market. Because the market is unregulated, recovery of investments due to a fraud or theft is limited. Business owners can often be targeted with ICOs and have to understand the risks before investing.
Be Wary Of Bitcoin Payment
While many big retailers have started accepting cryptocurrency as a payment method, small businesses need to be careful. Because the price is so volatile, the value can change quickly, making it difficult for a business owner to accept it as payment. After all, bitcoin could be trading at $8,000 one hour and then plummet the next. But it can still be lucrative.When CME and CBOE World Markets rolled out bitcoin futures, a handful of online brokerages started offering it to their clients. The few that took the risk were rewarded with new customers and increased trading volumes.Putting aside the risk, bitcoin has been a lucrative investment for many. Some proponents predict it will have a market value that eventually rivals Apple. The concept may be complex, but it's easy for people to buy bitcoin or invest in digital currency.Business Reputations At Risk With Cryptocurrency One of the appeals of cryptocurrency is that it is anonymous and unregulated. But that anonymity can hurt your business's reputation if its customer's digital wallets are hacked and their digital tokens are stolen. Because cryptocurrencies are based on blockchain technology, it's supposed to make it safer from hackers, but nothing is 100% foolproof. The risk remains that hackers could get their hands on digital wallets and make purchases with the ill-gotten gains, which could negatively affect your business. While cryptocurrency wallet companies are trying to enhance security, a hit to the reputation can spell demise for a small business.
With bitcoin hitting non-stop new highs, cryptocurrency is thought of as their next big financial break. Who doesn't want to see an investment skyrocket in a short time-period or miss out on the next big thing?But there are lots of risks associated with alternative currency. Investors need to weigh the chance of losing it all against the potential for riches when considering pouring money into the likes of Bitcoin.
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