How do Crypto currencies work?
I do not understand Crypto currencies, how they are valued and how they can help me in my investment planning. Should the average person avoid them?
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Answers ( 1 )
As currencies, they barely work at all. The concept is that when you want to transfer some of your Bitcoin (or whatever other currency) to someone else, you submit the transaction to the worldwide net of transactions, it's recorded, and then your balance goes down and the other person's balance goes up. It's anonymous, so it works well for illegal transactions, I guess.
But you can't sell any Bitcoin if you don't have any to begin with, so maybe you want to buy some first -- and sure enough, there are people who are willing to sell you Bitcoin for cash. So if you want to do that, go nuts. If more people want to buy Bitcoin than are willing to sell it, the price will going up (and vice versa).
There are a LOT of people, however, who don't want to do transactions with Bitcoin -- instead, they want to buy some in the hopes that the price will skyrocket and eventually they'll sell it for some sort of huge profit. This is called "speculation". It's not investing; it's buying into some sort of asset not because it has value, but because you believe someone else, down the road, will pay even more.
So that is not investing. There's no intrinsic value to Bitcoin and there's not intention for it to ever have value -- it was meant as a currency, but it's failed miserably at that goal. At this point, it's a joke -- a meme, a gag with a wink and a nod -- and the only question is "who will the last buyer be?" Eventually, the realization that it's not an asset of value will leave that person "holding the bag" and faced with a loss that they can never recover.
tl;dr -- do not buy.