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The Rise of Cryptocurrencies

Erik Sofranko

Posted on April 12, 2022 17:00

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With inflation on the rise, many people believe cryptocurrencies are a safer long term investment than government issued currencies.

A cryptocurrency is a digital currency with no central authority to maintain and manage its value, unlike the U.S. dollar. Without a central banking authority, all cryptocurrency transactions are automatically verified through a public ledger known as the blockchain. Cryptocurrency acts as its own virtual accounting system through the use of encrypted algorithms. This decentralized structure allows these currencies to exist outside of government control.
The first cryptocurrency, Bitcoin, was created in 2009 to offer the promise of lower online transaction fees than traditional online payment mechanisms. The identity of the creator of this technology is still unknown. Bitcoin remains the largest cryptocurrency in use today.
As a cryptocurrency, Bitcoin is created using cryptography, meaning there are no physical bitcoins. There are only balances that are verified through the encrypted public ledger, blockchain technology. This makes it almost impossible to create counterfeit bitcoins. Even though Bitcoin is not legal tender in most of the world, its creation has led to the launch of hundreds of other cryptocurrencies known as “altcoins” that are meant to compete against Bitcoin.
Even though cryptocurrencies are not a mainstream form of payment, they have been used primarily as an investment. Today, one Bitcoin (BTC) is worth about 40,000 U.S. dollars. It was worth less than one dollar in 2009. Despite the exponential growth, all cryptocurrencies suffer from extreme market volatility. This should be expected from an extremely new asset class.
Some retirement financial advisors have begun to advise their clients to allocate a tiny percentage of their portfolios to Bitcoin. Even a one percent portfolio allocation can provide beneficial account diversification that invests in multiple asset classes.
Cryptocurrency has also made its way into politics, which has opened the door to more widespread adoption. The Republican Mayor of Miami, Florida, Francis Suarez, has announced that he intends for Miami to become the crypto capital of the world. Through the creation of MiamiCoin cryptocurrency, the city has already raised over $5 million in 2022. Mayor Suarez intends for cryptocurrency disbursements to eventually eliminate the need for taxation and provide an increase in resources directly to residents.
However, Suarez admits this ambition may be difficult to achieve given the lack of stability in the cryptocurrency market and the unknowns about the future. Former New York City Mayor Mike Bloomberg has been a critic of Suarez’s bullishness by pointing out that MiamiCoin, like all other cryptocurrencies, cannot be used to purchase goods or services. It is currently only meant as a way to store value and raise money for municipal projects through an increase in demand for the city’s cryptocurrency token.
No financial expert can predict the future of the use of cryptocurrencies. It may either become a complete failure or become an integral part of everyday life for billions of people.

Erik Sofranko

Posted on April 12, 2022 17:00

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Source: Daily Mail

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