The Tumultuous Journey of Bitcoin and How Cryptocurrencies Work

By Chad Smith via

You’ve heard about Bitcoin and other cryptocurrencies for the past few years now. “Nothing attracts the attention of the public like the possibility of missing out on the latest craze,” Larry Swedroe once said. The fear of missing out (FOMO) is extremely enticing. As with all investments, it’s important to understand what you’re getting yourself and your money invested in.

What is Bitcoin and how do Cryptocurrencies work?

Bitcoin is a worldwide cryptocurrency and digital payment system. It was invented in 2009 by a person or group of people named Satoshi Nakamoto, and it is still unknown who exactly the founder was. There are now more than 1500 cryptocurrencies in the virtual world today. Cryptocurrencies are different than regular currency because there is no bank or government backing them. Cryptocurrencies are created by mining and like gold, they have a limited supply which is where their value comes from.

What are the risks of Bitcoin?

The list of risks for buying or investing in Bitcoin and other cryptocurrencies include, regulatory, security, insurance, fraud, and market risks. One of the largest unknowns is the potential that our government could pass crippling regulations for cryptocurrencies if it so chooses. There is also security risk in protecting your purse or online wallet. The wild wild west theme is evident here as the stories continue to pile up with someone hacking into a digital wallet or pursuing it the old fashioned way. Your money at the bank is insured by the FDIC, but cryptocurrencies are not, so how do you know you are buying real Bitcoin?

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