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The word crypto itself means secret or hidden. So it’s no wonder that so many people are confused about cryptocurrency. Today, investing expert Mark Biller joins Rob West to answer common questions about cryptocurrency. Mark Biller is executive editor atSound Mind Investing. The primary focus of crypto, at least at this point, is creating a new, digital financial system. It’s bigger than just trying to come up with a new form of money, but since everyone is familiar with money, that’s a good place to start. The key to this new kind of money is that it’s decentralized. It’s not controlled by governments as with other currencies. THE BEGINNING In 2008, an anonymous white paper was released that outlined a new digital currency called Bitcoin.This vision was of a peer-to-peer currency outside the control of any government. Somewhat amazingly, this whole white paper was only 9 pages long anyone can download it and read it. Needless to say, this Bitcoin idea has captured the imagination of millions of people. Besides being decentralized and outside of any government control, Bitcoin checks all of the boxes of functional money: durability, portability, fungibility, scarcity, divisibility, and recognizability. And importantly and in direct contrast to the inflationary monetary policies that we’re seeing around the world today Bitcoin was designed from the beginning to be sound money. Unlike government currencies which are constantly being devalued by printing more, there is a fixed cap of 21 million Bitcoins that can ever be produced. Frankly, Bitcoin has a lot of the same sound-money appeals that have long attracted people to gold. And that’s how it’s often described, as digital gold. RAPID GROWTH The value of Bitcoin has raced ahead at an astonishing pace since the first digital Bitcoin was produced in January 2009. As more people have bid for the slowly growing supply of available Bitcoins, the price has risen dramatically, although with staggering volatility. Bitcoin has an estimated 76 million owners already and proponents expect its explosive growth to continue. With a global population of nearly 8 billion people and the real-world applications for Bitcoin only beginning to be explored, there’s a lot of room for optimism. HOW DOES IT WORK? The first thing to understand is cryptocurrencies run on something called a Blockchain. A blockchain is a record of transactions updated and maintained by a decentralized network of computers. The big idea is that instead of a centralized ledger like your bank maintains, a blockchain allows a decentralized network of computers to record and maintain a record of transactions. Why is this important? Because we’re seeing the breakdown of trust in centralized institutions everywhere in society today. Whether that’s distrust of what the Fed is doing with our money, what the global health institutions are telling us, or more specific examples like the big tech companies de-platforming people whose opinions they disagree with, the appeal of being able to accomplish a lot of these same tasks in a decentralized way that doesn’t require blind trust in the institution controlling the ledger or database is a big deal. The bottom line is most crypto projects take something we’re already familiar with: currency, saving, lending, and so on, that normally require us to interact with a big institution, and redesigning that function using computer code in a way that enables groups to accomplish it in a trustless, decentralized way. THE RISKS There’s a lot of excitement around crypto, but it’s important to understand how new all this still is. At this stage of development, cryptocurrencies are still more of a speculation than an investment. So, a couple important warnings apply: First, the volatility in crypto is unlike anything most people have ever experienced. We’ve seen this firsthand over the past year, as Bitcoin and the rest of the crypto universe has dropped by 50% not just once, but twice. Multiple times in its short history, the whole crypto space has fallen more than 80%. So basically think of investing in tech stocks, and then realize crypto is going to be about four times as volatile as that. Second, there’s still a risk that a lot of today’s crypto will ultimately end up worthless. This shouldn’t be a shock we saw tons of Internet companies disappear 20 years ago as the Internet was going mainstream. The same winnowing process is likely in crypto over the next several years. And one of the biggest risks, in my opinion, is how governments are going to react as Bitcoin or any of these other cryptos threaten their stranglehold over money. Governments get a lot of benefits from controlling their currencies, and giving people a way to opt out of the official money via something like Bitcoin is likely to ruffle feathers. Not to mention that any big bank or other entrenched financial interest isn’t going to be keen on having a new better alternative take their business away. So we’re probably arriving at the now they fight you stage of crypto’s development. SHOULD YOU PUT MONEY IN CRYPTO? Mark Biller says the first thing to establish is that most investors don’t need this, in the same way they don’t need to invest in other speculative investments. We’d never tell a retiree to go put a bunch of their money in semiconductor stocks or any other speculative investment, and the same is true with crypto. So if you don’t understand this stuff, don’t feel like you’re missing out. If crypto really holds all the promise the optimists think it does, there will be chances in the future to participate with less risk as the whole industry matures over the next several years. For younger folks who want to put a toe in this pool and start learning about it, Mark advises taking it slow and keeping investments very small. Remember, crypto is still a speculation rather than a traditional investment. Approach it with the same level of caution you’d take with the riskiest pieces of a portfolio. So if you insist on investing in cryptocurrency now, make sure you do it with money that you can afford to never see again. Is that about right? You can read Mark Biller’s article, Intro to Crypto at SoundMindInvesting.org. LISTENER QUESTIONS On today’s program, Rob also answers listener questions: ●Should you take money out of savings to pay off debt or simply continue paying more than the minimum each month to pay it off more quickly? ●How can you get a handle on your finances as a one-income family? RESOURCES MENTIONED ●Find a Certified Kingdom Advisor ●Christian Credit Counselors Remember, you can call in to ask your questions most days at (800) 525-7000 or email them toQuestions@MoneyWise.org. Also, visit our website atMoneyWise.orgwhere you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook atMoneyWise Mediafor videos and the very latest discussion!Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking theDonate tab on our websiteor in our app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29