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People are getting into cryptocurrency in growing numbers. Tempted to join them? Here’s the bottom line about the risks and rewards—plus smart advice from the pros.
5 Facts You Need to Know
What it is
Crypto is a digital currency that’s often referred to as a coin, like Bitcoin. “It doesn’t physically exist, and you can buy and sell it without using a bank,” says Tani Chambers, founder and CEO of RAVN, an investment community for Black and Afro-Latina women, and the leader of the group Black Women Who Invest, which has 30,000 members. “Crypto has a unique digital signature to identify it,” she explains. “When you buy it, it’s logged into a digital ledger called the blockchain, and the digital signature or key signifies that it belongs to you.”
Why the blockchain is so important
This digital database stores information about the buying and selling of crypto and secures it through cryptography, which is a type of unbreakable code. Everyone who owns crypto has access to the blockchain and can see all the transactions taking place. (Buyers’ and sellers’ identities are encrypted and kept confidential.) There is no bank, financial institution, or other third party involved at all. That means there is no institution to manage it or maintain crypto’s value—which is one of the reasons its worth can rise and plummet dramatically.
Investing can be tricky
Experts urge caution, especially if you’re a beginner. Crypto is not tied to anything concrete the way stocks or shares in a company are. And it’s considered speculative and highly volatile. For instance, last spring, Bitcoin dropped 30 percent in one day. “You could invest in a cryptocurrency, and it could end up being worth nothing,” Chambers says. Also, you have to know what you’re doing, says Najah Roberts, a certified blockchain expert and the chief visionary officer of Crypto Blockchain Plug, a crypto-services company. “It’s not something you can pick up in a day or two,” she cautions. In other words, do research and educate yourself. “There are many complicated details you need to be aware of, because with crypto, you are essentially your own bank,” Roberts points out. “It’s a lot of responsibility.”
You need to be smart about it
If you do decide to invest, first choose a cryptocurrency exchange, such as Gemini, Kraken or Binance, and set up an account. You’ll get a virtual wallet. You then put money into your wallet to buy crypto. Once you’ve bought it, the wallet stores the digital signatures that indicate what crypto you’ve purchased.
Most experts, including Roberts, suggest starting with Bitcoin and not getting into alternative coins, which can be riskier.
And don’t over-invest. “Consider your risk-tolerance level,” Chambers urges. “Only invest what you can afford to lose.” Adds Roberts, “I tell folks all the time, the best way to get into this is to dollar-cost average.” To do this, choose an amount (she suggests $100 a month) and stick with it no matter what. “Some months it will buy you more; some months it will buy you less. But it protects you from losing too much,” she explains. Also, diversify your holdings. “Crypto should not be the only thing you’re investing in,” says Roberts.
What to watch out for
It bears repeating: Crypto is highly speculative and volatile. You can lose a lot of money if you’re not careful. Before investing, “do your due diligence,” says Chambers. And make sure you’re getting your information from a legitimate source. “There are bad actors in this space.”
There are also numerous crypto-related scams out there. “You’ll get all kinds of emails and direct messages telling you to click on a link,” she adds. “If you do, they can end up hacking your digital wallet and stealing your cryptocurrency or your personal information.” Ignore the messages and block the senders if you can, Roberts advises.
Written by Pam O’Brien; Artwork by Lucy Jones