what the heck is crypto?

Cryptocurrency. Bitcoin. NFTs.

We’re bringing the girl talk – and much-needed clarity – to this hot topic that’s causing a lot of buzz in the investment world.

Understand what all the fuss is about, what the heck is Bitcoin (and why there’s no need for fomo).

👀 4minute read

what is cryptocurrency

📷: Pinterest

What is Cryptocurrency?

In a nutshell, cryptocurrency (or ‘crypto’) is digital money.

You own digital coins (or keys) that you can use like real money.

Now, what the heck is Bitcoin? Bitcoin is a type of cryptocurrency. Similar to how we have US dollars and currency in different countries – online there’s Bitcoin, Ethereum, Dogecoin, Ripple, etc. They’re all different cryptocurrencies.

No matter what, investing in crypto is riskier than something like investing in a diversified portfolio. We want you to ensure you have the cash flow (extra money lying around) before you take the leap. Get to know your numbers within the Penny Membership. We have a mini budget calculator that'll do the hard math for you!

What’s the difference between crypto and US dollars?

#1 – It’s 100% digital.

Unlike US money, which you can see & touch when you take out cash at an ATM, crypto exists only online.

#2 – It’s decentralized.

There is no government, company, or entity managing it behind the scenes.

US money is centralized. The government holds complete authority over decisions. With crypto, nobody is pulling the strings. (getting sci-fi vibes yet?)

#3 – No banks involved.

Decentralization also means NO financial institutions to verify transactions or cash exchanges. Everything is done anonymously, from individual to individual, through a process called blockchain.

A blockchain is essentially a public digital ledger that records every single transaction made in that cryptocurrency. And it’s so complex, fraud is basically impossible.

OK, so what’s the fuss?

The prices of these puppies are soaring! Imagine turning $1 into $40,000. That’s basically what happened.

When Bitcoin first made its debut in 2009, one bitcoin was worth $0 dollars.

Today, $1 in bitcoin = about $40,000 USD (seriously, Google it).

The price skyrocketed after Elon Musk, the guy behind Tesla, announced their plan to buy $1.5 billion in bitcoin. Result? Everyone who bought bitcoin then is now swimming in money.

Well okay then! Now you might be asking, how do I invest in Bitcoin and go swimming with Elon?

Hold up, don’t run off to invest in crypto just yet.

The value does fluctuate tons. It was worth $50K last week, $40k this week, and it’ll probably change again by the time you’re reading this post.

Before we cover whether it’s actually worth your time, first you gotta understand it.

How does it work?

Ok, put crypto and bitcoin aside for a second.

Here’s a real-life scenario:

You and your friends have an awesome Eurotrip planned. During the trip, you take turns covering the bills. Whenever you eat out, go shopping, etc. – someone keeps track of who owes what. Once you’re back home, you tally up everything and settle up in cash (either in Euro, US Dollars, etc).

Then one day, your BFF says… Hey! Wait a sec. We borrow money from each other all. the. time!

What if we created our own money?

Since we’re here, we’ll call it PennyCoin. ;)

Everyone puts cash into a communal “travel fund”. When someone needs to cover a bill, they take money out of the travel fund. Whoever owes money at the end, they can settle up in PennyCoins (instead of Euro or USD).

Others hear about your crazy new system and they’re like, “OMG that’s genius! Can I get into that too?”

And then – PennyCoin becomes SO popular EVERYONE wants it!

Suddenly, people are offering you $50, $100, or $50K in US dollars to buy ONE PennyCoin. And companies are creating digital products that can be bought only if you own PennyCoins too (aka NFTs).

There you have it, ladies & peeps. Cryptocurrency & the hype, #explained.

Wait, what’s an NFT?

NFT stands for non-fungible token. They’re the digital equivalent of everyday items we know – like art, music, games, etc. But instead of buying the physical painting for your home, you get a digital file to download instead.

Is crypto safe?

To use? Yes.

‘Crypto’ refers to the fact it’s encrypted – just like an online credit card transaction, your financial information is “hidden” so it can be anonymously (and safely) shared across the interwebz.

To invest in? That depends.

Investing in cryptocurrencies like Bitcoin, Ethereum, etc. can be risky.

When you buy any type of crypto, you need to make an “educated guess” as to whether you think the value of that currency will go up or down in the future.

That’s the same as day trading. The reward might be high, but the lows are real low.

Here’s a general guide, from low to high-risk investing:

Low Risk – Diversified ETF portfolio of stocks and bonds
Medium Risk – Diversified ETF portfolio of stocks
High Risk – Stock picking (aka Amazon, Netflix, Apple)
Very High Risk – Cryptocurrency

So… Should I go for it?

Not if you need to rely on that money to live. Since it’s so volatile and high-risk, think of any money you put into crypto as forever gone.

But hey, 15% of bitcoin investors are women (Bloomberg). If you feel comfortable investing in bitcoin and other types of crypto, go for it! Just be sure to watch for scams.

Don’t want to jump on that bandwagon? We give you full permission to make money investing in safer options instead.

Have more questions?

Join the convo on Instagram @startwithapenny

Disclosure: At Penny Finance, we do not recommend individual investments. We are strictly financial education. Our role is to empower you with the tools and knowledge to make informed decisions for yourself and your own financial future.