What is Cryptocurrency?
By now, you’ve probably heard something about cryptocurrency. Also known as ‘crypto,’ cryptocurrency is a type of encrypted digital money that only exists electronically. According to the Consumer Financial Protection Bureau (CFPB), crypto has no physical coins or paper bills unless you use a service that allows you to cash in cryptocurrency for a physical token.
In the United States, you’re able to exchange cryptocurrency with someone online, using an electronic device – such as a smartphone, tablet, or computer – and often without using a third-party such as a credit union, bank, or other financial institution. In other countries, it’s becoming more common for people to pay for goods and services using cryptocurrencies like Bitcoin, and Ethereum.
Who is Using Crypto?
While most people have heard about cryptocurrencies at this point, far fewer have used them, according to data collected from the Pew Research Center. A survey conducted this summer shows the following:
- 16% of U.S. adults have invested in, used, or traded cryptocurrency.
- Of those who have, 46% say their investments have done worse than they expected.
- 15% of those polled say their investments have done better than expected.
Crypto Complaints & Warnings
Since 2019, the U.S. The Securities and Exchange Commission received more than 23,000 tips, complaints, and referrals regarding crypto-assets, according to a CFPB report, with a sharp increase noted in the last two years.
In March, the U.S. Department of Labor also warned of the volatile and speculative nature of the asset, noting:
“At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”
Last month, the Consumer Financial Protection Bureau released a report on some 8,300 complaints it received from October 2018 to September 2022, related to crypto assets, with 40 percent of complaints related to frauds and scams.
“Various transactional issues with crypto-assets accounted for about 25 percent of complaints, while issues with assets not being available when promised made up about 16% of complaints,” according to the report.
Earlier this year, companies including Fidelity Investments announced they would begin offering cryptocurrency through some 401(k) retirement plans.
Here are some of the most notable pros and cons of buying, holding, and investing in digital currency:
The Benefits of Crypto
People who use crypto say it’s easily accessible, and typically available day or night, outside of normal business hours.
To use it, you only need a device capable of connecting to the internet, such as a smartphone or laptop computer.
Fidelity Investments notes, cryptocurrency transactions often have lower fees and quicker transfer times to send money than traditional transactions.
The Risks of Crypto
Digital currency, including crypto accounts are not backed by any government, including the United States.
Cryptocurrency values change constantly and are considered volatile. (Those with a low-risk tolerance probably shouldn’t invest in this asset.)
In cases where people were the victim of fraud, or had an account hacked, according to the CFPB, they are often told there is nowhere to turn for help. Crypto-asset platforms and service providers tend to require mandatory arbitration and limit class action suits to use their services.
The Bottom Line
There are few guarantees when it comes to investing in digital assets. They are highly speculative and volatile. If you decide to take the plunge and invest in crypto, you should do it with the understanding that you could lose every penny. If losing money makes you anxious, you probably shouldn’t make the investment.
With Reporting by Casandra Andrews