Age with Grace Series: Cryptocurrency 101
What exactly is cryptocurrency?
Cryptocurrency is a new asset class that exists entirely online. If you are familiar with the term but unfamiliar with exactly what it means, this article is for you. Cryptocurrency could be a financial fad that eventually fizzles out, or it could continue to evolve and grow into a mainstream way to conduct business. In either case, cryptocurrency is both an exciting, revolutionary way to conduct financial transactions and a speculative novelty to be wary of.
Exciting and Revolutionary
Due to its intentionally decentralized existence, cryptocurrency allows two parties to make an exchange without involving a third party. In this way, it is more like a hand-to-hand cash transaction rather than a check or credit card that involves a bank or credit card company. Unlike the potential for a hand-to-hand cash exchange to be completely off the record, however, there is a digital record of a cryptocurrency transaction. Through a “block chain” or distributed ledger, which most cryptocurrencies use, a cryptocurrency transaction is made under a pseudonym and is encrypted and stored in pieces across a global network of participating computers. This data is immutable but may be traceable with significant effort.
Proceed with Caution
As we see in the news headlines, cryptocurrency is highly volatile, unprotected, and an environment conducive to scams. If you’re interested in dipping a toe in cryptocurrency, proceed with a vast abundance of caution.
Because its value is dependent on supply and demand, the value of a cryptocurrency is highly subject to everything from a post by a social media influencer, to a buy or sell by a “crypto whale,” who is a person or entity that holds a significant amount of cryptocurrency. In other words, anything that inspires holders to buy or sell en masse can suddenly and significantly affect the value of a cryptocurrency—resulting in a potential windfall or a catastrophic loss.
Again, Buyer Beware!!
No Traditional Protections
Unlike US currency, cryptocurrency does not have government backing. This means that unlike a savings account that is federally insured up to a certain amount if the bank fails, you are unprotected if the cryptocurrency company you are using fails. If a transaction goes awry, the government has no obligation to step in on your behalf. Furthermore, if you lose your digital key/password or mis-direct a transfer, there is no remedy available. Unlike most digital accounts, there is no password reset option for cryptocurrency. The value in your inaccessible account or the value you have mis-directed is simply gone. For these reasons and more, if you are interested in investing in cryptocurrency, it is essential to learn as much as possible about this new class of asset and how to safely manage it.
High Scamming Potential
In addition to learning about cryptocurrency itself, it is critical to get familiar with how scammers operate. Due to its nebulous online existence, cryptocurrency creates a favorable environment for scammers to operate in. In addition, due to its novelty, any rules and regulations for consumer protection are not able to keep up. One informative resource to consult for this is the What to Know about Cryptocurrency and Scams article from the Federal Trade Commission. If you choose to invest in cryptocurrency, staying on top of the latest scams will be essential.
Work with an experienced Virginia Estate Planning Attorney
Whether you choose to invest in cryptocurrency or not, it is important to entrust your estate planning goals to an experienced attorney who keeps up with emerging financial trends. Work with us. Contact Wilson Law PLC today at 866-603-5976 to set up a meeting or fill out our contact form and we will call you to schedule your meeting.