You’re not alone if you find the concept of cryptocurrency daunting. When someone mentions the topic of cryptocurrency or starts talking about all things Bitcoin, you might find your mind wandering. So, what is digital money? Where does its value come from? Is this something I should be investing in? How risky is it? And what exactly is the blockchain? And we don’t blame you. The idea of digital currency that isn’t managed by a bank or government seems like a plot point straight out of “The Matrix.”
So, to help break it down, we tapped Ayelen Osorio, the content and community manager at Netcoins, a Canadian cryptocurrency exchange company. “A big part of my job is learning about cryptocurrencies and bringing women along that journey with me,” Osorio tells Create & Cultivate. “A year ago, I had no clue what cryptocurrencies were but in a surprising twist of events, I became fascinated by them.” (Which is something that should give hope to all of the cryptocurrency-curious novices reading this right now!).
Ahead, she answers all our most pressing questions about cryptocurrency, from what it is to where it gets its price from and whether or not it’s a risky investment.
Most people have heard of cryptocurrencies, like Bitcoin, but might not totally understand what they are—Can you give us a brief overview?
Cryptocurrency is digital money. It’s money like the dollar or euro or yen. But it exists only in a digital form and is not managed by central authorities like banks or governments.
What this means is that we aren’t reliant on something like the bank if we wish to access, withdraw or move our money (Bitcoin). This is something called “decentralization.” It allows someone to send Bitcoin from one part of the world directly to another in a way that’s instant, secure, and with minimal fees.
You can also think of Bitcoin as a store of value like gold. While Bitcoin, like gold, isn’t commonly used to buy goods and services on a daily basis, it still holds value because of its limited supply and because of the difficulty of producing. Many refer to Bitcoin as “digital gold”.
We’ve gone through many iterations of money throughout history from seashells to cattle, gold and other precious metals, to paper money and plastic money (a.k.a. credit cards). For many Bitcoiners, cryptocurrencies like Bitcoin are the future of money.
Where does cryptocurrency get its price from?
Cryptocurrency prices are set in the same way that the price of real estate is set by the supply and demand of the market. Then there are platforms and sites that aggregate these market prices to pull a global price average—that’s the number we use when we say “the price of Bitcoin is $50,000.”
What makes cryptocurrency unique?
A unique characteristic of Bitcoin is that it has a limited supply of 21 million coins (remember these aren’t physical coins). In theory, this scarcity would suggest that Bitcoin is protected from hyperinflation and therefore should hold value in the long-term.
This stands in stark contrast to the dollar which is unlimited in supply. Governments are known to be willing to print an unlimited amount of money, which causes long-term inflation. That’s why the dollar keeps losing buying power over time; that sandwich that cost $1 about 15 years ago, today costs $5. Inflation is keeping us poorer.
It’s precisely because of this that Tesla recently bought $1.5 billion worth of Bitcoin, why the Winklevoss Twins (investors and entrepreneurs) believe that the price of Bitcoin will reach $500,000, and why we’re seeing more and more investors buying Bitcoin. What they all have in common is that they believe Bitcoin is a safe haven and a valuable savings technology during the unprecedented time that has been the pandemic.
What are the risks of investing in cryptocurrency?
To start, all forms of investments carry with them an inherent level of risk so you should never invest more than you’re willing or ready to lose.
Cryptocurrencies like Bitcoin are known to be volatile and the price fluctuates quite a bit on a day-to-day basis. But many Bitcoiners see this as the growing pains of a new, better financial system being put in place.
It’s important to zoom out and look at the bigger picture. In 2010, one Bitcoin was worth less than $0.10. Fast forward 11 years, in 2021, one Bitcoin is worth over $54,000 (at time of writing). This is partly why Bitcoiners are willing to withstand volatility in the short-term because it trends in an upward direction in the long-run.
In terms of hacking and theft, you may remember when earlier this year a 17-year old hacked celebrities’ Twitter profiles and asked for Bitcoin donations. The media said that Bitcoin got hacked. But Bitcoin didn’t get hacked, Twitter got hacked.
The Bitcoin network (known as the blockchain) has actually never been hacked. It’s almost impossible to hack because the network is run among thousands of computers spread around the world. So a hacker can’t find a single, central point of weakness for an attack. This is why the technology is revolutionary. Most of the hacks we’ve heard about have been caused by human error like sharing passwords or allowing other people to manage their funds.
What are some investment tips you can offer to women wanting to start out?
A common misconception is that you have to buy one entire Bitcoin. But you can actually buy fractions at as little as $10, $100, $1000. The great thing about cryptocurrencies is that you can start out small. For example, 0.5 BTC, 0.1 BTC, 0.01 BTC. This means that even if you’re relatively risk-averse, you can still test out the crypto waters with just $10. This is unlike stocks, where you have to buy the stock at its full price.
The best way to learn about crypto and start out is to experience it firsthand. Create an account, see how easy it is to fund with an e-transfer, and make your first crypto purchase with just $10. It’s a much simpler process than many imagine it to be.
Women looking to diversify their portfolio could benefit from investing in non-traditional assets (like cryptocurrencies) alongside their traditional assets (stocks, real estate, etc). But similar to stock trading, you need to be comfortable with a certain level of risk.
Generally speaking, I would say:
Investing in cryptocurrencies probably isn’t a great fit for those that are looking for quick and guaranteed profit. Cryptocurrencies are volatile, so it does require some patience and time to reap the benefits, but this is also true about stocks and real estate.
About the expert: Ayelen Osorio is the content and community manager at Netcoins. She has a natural knack for writing and community building. Ayelen brings years of experience in communication, marketing campaigns, and partnerships. If she’s not writing, she’s out hiking.