Chances are you’ve heard of cryptocurrency, but as it grows in popularity so do the questions surrounding it.
PORTLAND, Maine — As cryptocurrencies like Bitcoin grow in popularity, so do the questions surrounding it. We spoke with Eben Jose, a chartered financial analyst with Spinnaker Trust in Portland, to break down the basics.
Q. Let’s start with the very basic question, what is cryptocurrency?
A. So, cryptocurrency is a digital currency, and the vast majority of cryptocurrencies are decentralized networks that are on the blockchain. So, that’s kind of a mouthful, but basically they’re not regulated by a centralized authority. So the U.S. dollar, which is a currency, obviously is regulated by the U.S. government, so they control supply and demand. They can print more. See, that’s not the case with most cryptocurrencies.
Q. How many different cryptocurrencies are there?
A. There are a lot now. Of course, it all started with Bitcoin back in 2009, and now there are over 10,000 cryptocurrencies out there of various sizes.
Q. What is Bitcoin? And do experts see it as the future?
A. Bitcoin is really the first cryptocurrency, so it has a large first mover advantage in terms of adoption. It was originally mostly used for just moving money anonymously. But now a lot of people and institutions are seeing it as an investment, an alternative to equities, bonds and other things that have widespread adoption.
Q. What can you actually purchase with cryptocurrencies like Bitcoin?
A. You still can’t really purchase much with Bitcoin directly. It’s hard. It doesn’t allow for many transactions per second. Like, for example, if you’re using your Visa card, you know, thousands and thousands of transactions per second. It’s really hard to transact in Bitcoin. But some companies have made an effort. I think Overstock.com is one of them where you can actually buy stuff with Bitcoin, and for a brief amount of time, you could actually buy a Tesla with Bitcoin.
Q. If you can’t really purchase a lot of different things with it, what’s the point of having it?
A. That’s a really good question. I think it’s become more of a store of value. So, in the investment community, we see it compared to gold a lot of the time because there is a finite supply of Bitcoin. There’s a finite supply of gold in the ground. It’s not like the U.S. dollar where the government can continue printing.
Q. We’re also hearing more about these non-fungible tokens or NFTs. What are these and are they a form of currency as well?
A. I wouldn’t say they’re a form of currency. They’re digital assets that are also on the blockchain. A lot of NFTs are digital art that there’s one original copy of it and that can be transacted on the blockchain, which means only one person at any given time can own that piece of art.
Q. What would you say is the appeal behind these?
A. I think NFTs are a bit more speculative right now. It’s really early in the life cycle for NFTs. So I would say, you know, it’s an investment, probably to some, but certainly there isn’t widespread adoption of NFTs right now.
Q. How should folks that approach the market if they’re looking to invest in Bitcoin or NFTs?
A. Bitcoin is still very volatile relative to stocks and bonds. It just hasn’t been around long enough. So you know. you should approach it with caution. I mean, I think the same goes for NFTs. You know, only invest what you can afford to lose. So a very small amount of any complete portfolio should be in Bitcoin or NFT.
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