You're likely hearing a lot about cryptocurrency these days. As a parent, you probably have a lot of questions about it, especially since many young people are very interested in it. In fact, some teens already investing in cryptocurrency, underscoring the fact that cryptocurrency is an existing financial opportunity that kids are aware of and so it deserves our attention.
That said, some people see cryptocurrency as a trend or fad and warn that investing in cryptocurrency is like gambling. So, is it? Let's take a closer look at what cryptocurrency is and the investment options it offers to help answer this question.
In a nutshell, cryptocurrency is a digital currency that's used for peer-to-peer online transactions. What makes it so different from most currencies is that it's not controlled or backed by any government or central authority. It's based on a technology called blockchain, and crypto creators, users, and other stakeholders constantly monitor and update the cryptocurrency system, making it somewhat of a self-policing currency network.
Investing versus gambling
In the most basic terms, investing is buying securities or other financial products you expect to increase in value over an extended period of time. Gambling, on the other hand, typically involves wagering money in order to make a quick buck. For example, you wouldn't consider betting on sports (gambling) as a method of saving for retirement. However, buying shares in a mutual fund (investing) is a way to save for retirement.
The risk factor
Both investing and gambling involve risk, that is, there's a chance you might lose your money. However, with investing, you typically have a strategy to control the amount of risk you take. For example, a balanced investment portfolio might include some riskier technology stocks, some reliable stocks, some very predictable bonds, and some cash. That way, if the tech stocks don't pan out, you only lose a portion of your money, not all of it.
Gambling, on the other hand, is significantly riskier and harder to balance. You wager your money, and you either win or lose. You can have a gambling “strategy," but you have no control over the outcome.
The relationship between age and risk
There's also an important relationship between risk and age when it comes to investing. In theory, a younger person who has 40 years to save for retirement can afford to take greater risks because if they lose some money, they'll have more time to recoup their losses. Whereas an older person nearing retirement may want to minimize risky investments since they don't have decades to make up for their losses.
There is no age-risk relationship when it comes to gambling because it is, by nature, a short-term endeavor.
Is investing in cryptocurrency gambling?
Because cryptocurrency is new and unproven, many currently consider it a risky investment. It could be completely gone in a decade, or it could be the future of money—no one really knows yet. But that doesn't mean investing in crypto is the same as gambling. First, it is a currency that is actively being used in the economy. So having it is already worth something.
The key is to have a strategy. Research to see which ones are more stable and which ones look more promising. Learn about the tools and protocols you'll need to know to manage your digital money safely. As with all investments, diversify. Avoid investing all your money in crypto alone, or in a single cryptocurrency. Make sure to balance your investments with something less risky, like Roth IRA.
Remember: Investing in crypto isn't about getting rich quickly. Sure you can use the cryptocurrency you buy, but for the chance to earn from it, you'll need to let it sit and hopefully grow - the way early Bitcoin investors saw their investment flourish!
As with any investment, you should take time to research which cryptocurrency you want to invest in—including purchasing, storage, security, and other factors—so you can make an educated, informed investment decision.
How do you feel about cryptocurrency? Do you see it as an investment? Let us know what you think on Twitter tag us, @gohenry with #letstalkmoney