By Kristin Hovencamp
Today, investing in cryptocurrency is all the rage. Ten years ago, digital cash was barely on anyone’s radar. In 2008 Satoshi Nakamoto published an abstract introducing the world to bitcoin. Nakamoto’s concept involved “a purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.” Bitcoin investing has since evolved, and so has the confusion surrounding it. The following are basic bitcoin terms.
Digital currency – A form of money available only in digital or electronic form.
Cryptocurrency – A digital currency in which encryption techniques are used to regulate the generation of currency units and verify the transfer of funds, operating independently of a central bank or government.
Bitcoin – A legal, digital cash system designed for any two people to transfer currency anywhere in the world securely. Bitcoin is not pegged to a fiat currency.
Blockchain – A digital ledger in which transactions made in cryptocurrency are recorded chronologically and publicly. Bitcoin is powered and secured by blockchain technology.
Digital Wallet – An electronic device, an online service, or a software-based system that allows one party to make electronic transactions with another party bartering digital currency units for goods and services. Bitcoin uses digital wallets to store crypto, maintain balances, and complete transactions.
Coinbase – A large cryptocurrency wallet provider and exchange. Subscribers can buy, hold, and trade units of bitcoin such as Bitcoin, Ethereum, XRP, and Litecoin. Bitcoin is not listed on a publicly traded exchange.
Investors no longer talk about bitcoin as a purely peer-to-peer version of electronic cash, as was Nakamoto’s concept. Instead, I hear it referred to it as “digital gold.” Bitcoin, like gold, is a vehicle for speculation. Alex Pickard of Research Affiliates cautions, it is not an investment vehicle, a store of value or an inflation hedge. Understand what you are investing in. Bitcoin may have a magical feel, but it is not gold.
Kristin Hovencamp is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Bitcoin issuers are not registered with the SEC, and the bitcoin marketplace is currently unregulated. Bitcoin and other cryptocurrencies are a very speculative investment and involves a high degree of risk. Securities that have been classified as Bitcoin-related cannot be purchased or deposited in Raymond James client accounts.675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605. HazlettWealthManagement.com