August 04, 2021 | eFocus @ Legacy

Cryptocurrency: A transformative technology

By: Tammy M. Ross, Trust Administrative Officer

Cryptocurrency is a term that sounds something out of a futuristic fictional novel or movie, but in fact it is a digital asset that is changing the way wealth is being created and distributed in the present.  Cryptocurrencies are a financial phenomenon that has people either believing this technology will change the world for the better or that it is a dangerous trend with the potential to disrupt global economies.

Cryptocurrency is a digital asset created from computer code.  It is a digital form of currency that can be exchanged for goods and services or traded for profit.  Bitcoin (BTC) was the first cryptocurrency created in 2009.  It currently is the most popular and most widely mined form of cryptocurrency.

Cryptocurrency mining & storage
Cryptocurrency can be acquired by mining for it using cryptocurrency software or purchasing it via a cryptocurrency exchange.  Cryptocurrency is ‘mined’ by computers solving cryptographic math problems.  In exchange for solving the problems, miners receive cryptocurrency.  These math problems grow increasingly more difficult over time, thus increasing the required computational power required to solve them.  Mining cryptocurrency can be time-consuming, complicated and expensive.  For those reasons more people choose to purchase or invest in cryptocurrency rather than mine for it themselves.  Regardless of whether it is purchased or mined, a cryptocurrency wallet is needed for storage.  A cryptocurrency wallet is a private digital key known only to its owner that confirms the person or group purchasing the cryptocurrency and links that person or group to the blockchain.

Blockchain technology
Cryptocurrency transactions are completed via a blockchain network.  Blockchains are a decentralized computer network of database files, which are not controlled by a single entity, government or financial institution.  Transactions are stored on a secured permanent blockchain database, known as a ledger, using only the user’s cryptocurrency address.

Cryptocurrencies eliminate the need for an intermediary in financial transactions.  Traditional currency requires the use of a bank or other third-party institution for transaction validation and monitoring.  Cryptocurrencies eliminate the need for verification services since all parties involved verify the transaction within the blockchain.  Blockchain transactions occur over a secure peer-to-peer computer network payment system.  This lowers transaction costs by streamlining payment processing.  Blockchain transactions are irreversible and impossible to duplicate thus potentially making it more difficult for hackers to commit fraud.

In addition to fund transfers, blockchain technology is currently being used, or has the potential to be used in the future, for things such as online voting, crowdfunding, real estate property records, automobile registration, healthcare records, supply chain streamlining, settling trades, ownership validation and collectibles authentication.

At Legacy Private Trust Company
We do not presently invest client funds in cryptocurrencies due to the volatility of the currencies and the risk inherent in this alternative asset class. However, we believe the underlying blockchain technology will play a large, although maybe yet undefined, role in the future of the world.  We prefer instead to invest in the companies that produce or utilize the innovative goods and services that stem from the blockchain technology.

When cryptocurrency was first introduced not many people took it seriously and viewed it as more of a pipe dream rather than an investment opportunity.  Today, news about Bitcoin and other cryptocurrencies using blockchain technology can be found everywhere.  Cryptocurrency is more than just a store of value or a hedge against inflation.  It is a technology that is changing the world.  Its features and functions are impacting the global economy in tangible ways and only time will tell how far this cryptocurrency revolution will go.

 

If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or info@lptrust.com.

This information has been prepared by Legacy Private Trust Company for informational purposes. Any opinions expressed herein represent our current analysis and judgment and are subject to change. Actual results, performance, or events may differ based on changing circumstances. No statements contained herein should substitute for professional legal, tax, or other specialized advice.