What are Digital Currencies and Are They a Worthwhile Investment Option?

There is no denying that digital currencies have gained a lot of traction over the last couple of years. These days, it has become nearly impossible to browse the web and not stumble upon at least one article featuring words like “bitcoin,” “blockchain”, or “cryptocurrency.” Some of these posts are affirmative and paint the mentioned words as the future of the economy with the potential to disrupt the contemporary bank system. Others claim they are nothing but a fraud.

Let us try, then, to finally set things straight and examine what people are probably interested the most – are digital currencies a viable investment option?

Digital currencies – Clarifying the terms

But, before we delve deeper into this topic, let us once and for all clarify all of the confusing terms the digital currencies are associated with. Starting with:

• Digital currency – From a technical standpoint, digital currencies are nothing more than heavily protected entries in some remote databases. However, these entries can also be used as digital-only currencies (they cannot be exchanged for money) used for making purchases across supported devices and networks.
• Cryptocurrency – A digital currency that uses cryptographical functions as a base for conducting financial transactions. They are known for their high level of decentralization and transparency.
• Blockchain network – The system for production and distribution of cryptocurrencies. It consists of millions of interconnected computers with no central administration.
• Cryptocurrency mining – Essentially, the process of mining can be best described as renting your computing-capable hardware to the blockchain network for which you are rewarded with a set amount of the cryptocurrency.

The benefits of digital and cryptocurrencies

Now that we’ve moved these convoluted terms off the table, it is hard not to notice that the idea of digital currencies offers some very tangible benefits.

First, there is the whole concept of mining. If we take a look at Bitcoin as the most popular cryptocurrency out there, we can see that the only thing you need to start producing crypto coins is the sufficiently powerful bitcoin mining rig. As soon as you hook up the system, the rig becomes the part of the blockchain and the mining begins. Of course, your returns will heavily depend on the amount of money you invest.

Second, the environment in which the crypto-currency transactions are performed is transparent, decentralized, and devoid of any kind of fees. If you are living in Boston and want to make payment in Singapore, you can do that completely free and within seconds. Of course, as long as you and the recipient are connected to the same network.

This fact, coupled with a rather convoluted method of production, makes cryptocurrencies very sought out commodities. Their price is constantly on the rise. Let’s take Bitcoin as an example once more. If we put aside occasional price plummets and look at the big picture, we can see that the price of a single bitcoin rose from one quarter-of-a-cent to staggering $2,200 in the period from 2010 to 2017.

Not quite the best short-term option, but a valuable asset for investors playing the long game.

The best digital currency investment options

Finally, let’s take a quick look at some of the most popular investment options you should check if you want to explore this market and expand your portfolio.

• Bitcoin – By far the most popular cryptocurrency in existence. By design, bitcoins are limited to a number of 21 million which means they are not subjected to inflation.
• Ethereum – The second most popular investment option. In spite of the lower price (compared to Bitcoin) Ethereum still reports a steady year-to-year increase in value.
• Litecoin – A peer-to-peer digital currency that sees occasional spikes but is still marked by low volatility. A solid choice for new crypto investors.

We hope these few considerations gave you a better idea of what the digital currency market exactly is and whether the whole affair is worth your attention. We say it’s definitely an interesting investment option that can provide excellent results if you are ready to play a long game. In the end, adding more investment options into your portfolio can only make it stronger.