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Pros and Cons of Cryptocurrency

 Peter Palion, a certified financial planner (CFP) in East Norwich, New York, thinks it’s safer to stick to a currency backed by a government, like the U.S. dollar. “If you have the U.S. dollar in your cash reserves, you know you can pay your mortgage, you can pay your electricity bill,” Palion says. “When you look at the last 12 months, Bitcoin looks basically like my last EKG, and the U.S. dollar index is more or less a flat line. Something that drops by 50% is not suitable for anything but speculation.” That said, for clients who are specifically interested in cryptocurrency, Ian Harvey, a New York-based wealth advisor, helps them put some money into it. “The weight in a client’s portfolio should be large enough to feel meaningful while not derailing their long-term plan should the investment go to zero,” says Harvey. As for how much to invest, Harvey talks to investors about what percentage of their portfolio they’re willing to lose if the investment goes south. “It could be 1% to
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Should You Invest in Cryptocurrency?

 Experts hold mixed opinions about investing in cryptocurrency. Because crypto is a highly speculative investment, with the potential for intense price swings, some financial advisors don’t recommend people invest at all.
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Best Crypto Exchanges

 Cryptocurrencies can be purchased through crypto exchanges, such as Coinbase, Kraken or Gemini. They offer the ability to trade some of the most popular cryptocurrencies, including Bitcoin, Ethereum and Dogecoin. Still, they may also have limitations. You’ll have to check to see if your exchange supports the right crypto pairing you need to make a purchase. For example, you can use your stash of USD Coin, a crypto stablecoin, to buy Ethereum on Coinbase Exchange. “It was once fairly difficult but now it’s relatively easy, even for crypto novices,” Zeiler says. “An exchange like Coinbase caters to nontechnical folks. It’s very easy to set up an account there and link it to a bank account.” Keep an eye out for fees, though, as some of these exchanges charge prohibitively high costs on small crypto purchases.
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How Can You Use Cryptocurrency?

 While there are a number of goods and services that you can buy with crypto, particularly with Litecoin, Bitcoin or Ethereum, you may also use crypto as an alternative investment option outside of stocks and bonds. “The best-known crypto, Bitcoin, is a secure, decentralized currency that has become a store of value like gold,” says David Zeiler, a cryptocurrency expert at financial news site Money Morning. “Some people even refer to it as ‘digital gold.’”
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How Can You Mine Cryptocurrency?

Mining is how new units of cryptocurrency are released into the world, generally in exchange for validating transactions. While it’s theoretically possible for the average person to mine cryptocurrency, it’s increasingly difficult in proof-of-work systems, like Bitcoin. “As the Bitcoin network grows, it gets more complicated, and more processing power is required,” says Spencer Montgomery, founder of Uinta Crypto Consulting. “The average consumer used to be able to do this, but now it’s just too expensive. There are too many people who have optimized their equipment and technology to outcompete.” Proof-of-work cryptocurrencies also require huge amounts of energy to mine. For example, Bitcoin mining currently consumes electricity at an annualized rate of 127 terawatt-hours (TWh), which exceeds Norway’s entire annual electricity consumption. While it’s impractical for the average person to earn crypto by mining in a proof of work system, the proof-of-stake model requires less high-powere
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Proof of Work vs. Proof of Stake

 Proof of work and proof of stake are the two most widely used consensus mechanisms to verify transactions before adding them to a blockchain. Verifiers are then rewarded with cryptocurrency for their efforts. Proof of Work “Proof of work is a method of verifying transactions on a blockchain in which an algorithm provides a mathematical problem that computers race to solve,” says Simon Oxenham, social media manager at Xcoins.com. Each participating computer, often referred to as a “miner,” solves a mathematical puzzle that helps verify a group of transactions—referred to as a block—then adds them to the blockchain ledger. The first computer to do so successfully is rewarded with a small amount of cryptocurrency for its efforts. Bitcoin, for example, rewards a miner 6.25 BTC (which is roughly $200,000) for validating a new block. The race to solve blockchain puzzles can require intense computer power and electricity. That means the miners might barely break even with the crypto they rec
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What Is a Blockchain?

 A blockchain is an open, distributed ledger that records transactions in code. In practice, it’s a little like a checkbook that’s distributed across countless computers around the world. Transactions are recorded in “blocks” that are then linked together on a “chain” of previous cryptocurrency transactions. “Imagine a book where you write down everything you spend money on each day,” says Buchi Okoro, CEO and co-founder of African cryptocurrency exchange Quidax. “Each page is similar to a block, and the entire book, a group of pages, is a blockchain.” With a blockchain, everyone who uses a cryptocurrency has their own copy of this book to create a unified transaction record. Each new transaction as it happens is logged, and every copy of the blockchain is updated simultaneously with the new information, keeping all records identical and accurate. To prevent fraud, each transaction is checked using a validation technique, such as proof of work or proof of stake.
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