Money Sense: Virtual Currency 101

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Since the beginning of time, people have “bought and paid” for items and services.  It hasn’t always been with what we know today as money.  It was through a bartering system, trading animals or their byproducts, even clam shells.  As long as a “value” was agreed by both parties, then an exchange took place.  In 1913, the United States adopted a gold standard which was replaced in 1933 to dollars. Fast forward 100 years and there is now the option of virtual currency.  Virtual currency is a kind of electronic money.  It is a digital representation of value that is not issued by a government, such as a central bank like the Federal Reserve, but is accepted as a means of payment and can be transferred, stored, or traded electronically.

There are almost 10,000 types of virtual currency or cryptocurrency.  Bitcoin is the largest and most popular virtual currency.  These virtual currencies are growing in popularity and function as both a currency and as a virtual accounting system.  They’re stored in a virtual wallet and can be purchased through many websites like Cash App, Coinbase, PayPal and Venmo.  Virtual currency can also be purchased through some brokers.  Utilizing an exchange service allows users to buy, sell, trade and securely store cryptocurrencies.

The advantages of virtual currencies include faster transaction speeds, ease of use and a potential increase in value.  Disadvantages include their susceptibility to be hacked and do not provide legal recourse to investors because they are not regulated. Paying for purchases with cryptocurrency does not come with legal protection.  Credit and debit card transactions have legal protections if something goes wrong and consumers can dispute purchases.  Once a purchase is made with virtual currency, the consumer would be unlikely to get their money back.

While there are many advantages and benefits of virtual and cryptocurrency, scammers have also found a way to capitalize on these new ways to steal your money.  The most common red flag is anyone who says you must pay by cryptocurrency.  Anyone who tells you to pay by cryptocurrency, usually by depositing money into a bitcoin ATM, wire transfers or gift cards, is a scammer. Once you make payments through these methods, there is almost no way of getting your money back and that’s what the scammer is counting on.

Virtual currency and cryptocurrency are increasing in popularity and so are the investment opportunities they present.  It is always smart to do your research and even seek advice from brokers to protect your investment.