Edgar had recently asked, "What is your opinion on purchasing cryptocurrency?".
Thanks for your question Edgar! Here is Next Pronto's take:
First of all, it's incredibly important to make a distinction between 1) BLOCKCHAIN and 2) CRYPTO CURRENCY whenever drawing any conclusions about the opportunities of investing in crypto. The 2 terms are usually used interchangeably in financial media and by financial analysts and pundits. Let's be clear on one thing: they are NOT one and the same.
This is probably the most important point -- perhaps the ONLY point -- that should be made in any discussion about crypto investing.
First we have Blockchain. Blockchain is the technology that powers the recording of all kinds of transactions and tracking of assets in a network. But in order to be tracked by blockchain, an asset doesn't have to be digital. It can be tangible such as a box of oranges, a car, land, a home, etc. It can also be intangible, such as a patent, copyrights to a song, a vote in a presidential election, and one coin of cryptocurrency. Almost anything of value can be tracked and traded on a blockchain. Blockchain is an AMAZING technology that is disrupting countless industries and will continue revolutionizing the way the world tracks, stores and confirms data and transactions.
Now, let's turn to Cryptocurrency. Cryptocurrencies are virtual currencies supported by cryptography that can operate on a large decentralized network. Because they are decentralized, they are not issued by a central bank (i.e. US Federal Reserve or the Peoples Bank of China), they generally exist outside the control of governments, and are nearly impossible to double-spend.
Trading crypto has become quite a global fad over the past years, but it's just one of many applications that derive their power and functionality from blockchain technology -- not the other way around! To put it lightly: crypto needs blockchain, blockchain does NOT need crytpto.
Think of it as the Internet vs. Amazon. The Internet powers all kinds of communication and commerce. It's the technology that allows all of us to send emails, shop online, and read the news on our cell phones. Amazon is NOT the Internet. In fact, Amazon as we know it would arguably not exist if it weren't for the Internet. The Internet powers Amazon, NOT the other way around. In fact, if Amazon were to go bankrupt or cease to exist, the Internet would carry on just fine. It would continue enriching communication, channeling information, and enabling business transactions all over the world.
Investing in cryptocurrency is possible. You can do it through a digital wallet or opening an account at a specialized broker such as Coinbase. Is it novel? Yes. Generally speaking few people have direct exposure to cryptocurrency. Is it fun? Absolutely -- at least while some of these cryptocurrencies continue to rise in price and people feel like they're part of a movement or a revolution. Is it profitable? -- It depends. Like any investment, you can profit only if you buy low & sell high. Is it risky? Very much so. It's not only risky, it's perhaps the riskiest asset class (if we can call it that) in the universe. Just look at the outrageous volatility most cryptocurrencies (except stable coins) have exhibited over years of existence. Is it useful? Probably not. Unless ALL you're trying to achieve is to have fun, not miss out on a trend, or come-off as a hip investor, cryptocurrencies will unlikely help you achieve most of your financial goals.
But don't worry, you can still benefit enormously from all the amazing changes that blockchain technology is creating for the world WITHOUT being an investor in crypto. That's because when it comes to value creation, the value (different from price) is NOT in the cryptocurrencies themselves, but rather in the companies that are creating the best products and services by using new blockchain applications. In other words, if companies like Meta, Apple, Amazon, Netflix, Walmart, JP Morgan, and Microsoft (just to name a few) are able to leverage blockchain and launch new services, create bigger cash flows, generate higher earnings, and pay fatter dividends, you can profit enormously from this!
As for cryptocurrencies...
They will probably stick around for a while. As long as there are people out there that "believe" that the prices of most cryptocurrencies will go up for a very long time, crypto will remain in the spotlight, and those annoying YouTube streaming know-it-alls will continue pulling attention away from blockchain and other technologies that are far more important and consequential than crypto.
So what do we think about investing in cryptocurrencies?
They're fun, they're hip, and they're risky.
But considering that most people have terribly important goals in life that require a whole lot MORE than being fun, hip, and risky, we feel that investments in crypto will not get them from point A to point B.
If you're already invested in Crypto, enjoy the ride.
If you're not, don't worry. There's far more important things to invest in!