Insights: Cryptocurrencies 101
While Bitcoin is the most known cryptocurrency, there are many others. (March 2017)
[MUSIC PLAYING] ROBERT HACKETT: Cryptocurrencies are a kind of virtual money. It operates a lot like cash and you can use it online anywhere in the world. A lot of people are familiar with Bitcoin, but there are actually a lot of other different kinds of cryptocurrencies out there. There's a Ripple, there's Ether, Litecoin, Z-Cash, Monero, and I could go on. There are lots and lots of these. Most of the cryptocurrencies are scams. People will create a rip off of Bitcoin and then they'll get people excited about it. Say hey, everybody should invest in this thing, it's going to go up in value over time. And then they just try to get rich quick. But some of them actually have some really interesting qualities and features that separate them from Bitcoin. A lot of people also think that Bitcoin let's you remain anonymous. That's not exactly true. It actually gives you a pseudonym, an alias to operate under, and some other cryptocurrencies are taking this and trying to solve that problem by making it truly private and truly anonymous. Monero mixes a bunch of transactions together so that you can't see who is getting paid what. And then there's also Z-Cash, which uses some cutting edge cryptography to encrypt the data so that people can't see what you're doing, who you are, how much you're paying, where the money is going, things like that. Another cryptocurrency that's been getting a lot of popularity lately is called Ether. This is a much more flexible kind of system. It allows people to write apps on top of it. Imagine being an investor and you want to put your money into some sort of investment vehicle and what Ethereum allows you to do is, instead of having banks and lawyers figure out all the contracts and all of the money arrangements in between the parties, Ethereum lets you code that actually into a computer program so that when some milestone is hit, you get automatically paid out. It's written in the math. Cryptocurrencies allow you to cut out the middleman so say, I'm here in New York and I want to send some money to somebody over in Africa. If I do that, I won't have to pay a third-party, a middleman like Western Union or something, to facilitate that payment. So it's much cheaper that way. Some people who believe in Bitcoin and other cryptocurrencies, they invest in it sort of as a hedge against the global economy. We saw what happened back in 2008-2009 when the financial system collapsed and all of these banks went under and they had to get bailed out by governments. So instead, they back digital currency that way in case something like that happens again, you know, maybe that'll shoot up in value. When it comes down to it. These digital currencies are bets. You're gambling with your money. You know, the value might go up over time, you might make money on it. Or it could crash and burn and you could lose everything. So make sure you only spend what you're willing to lose.