Bitcoin was first created in early 2009, partly as a response to distrust of national governments and traditional financial institutions in the wake of the global financial crisis. As the oldest and most established cryptocurrency, bitcoin still accounts for the lion’s share of investor interest and assets, but there are now thousands of digital currencies on the scene.
In this series on portfolio basics, I’ll explain some of the fundamentals of putting together sound portfolios. I’ll cover a wide range of asset classes and walk through what you need to know to use them effectively in a portfolio. For cryptocurrency, our view is that it should occupy just a small slice of a diversified portfolio and only if you intend to hold on to it for at least a decade before selling.
[Portfolio Basics: How to Build an Investment Portfolio]
What Is Bitcoin?
Bitcoin was originally conceived as a digital, encrypted alternative to traditional currencies controlled by central banks. It exists only in digital form and doesn’t rely on third-party intermediaries to verify transactions or record ownership transfers. Instead, bitcoin is a form of virtual, decentralized money that is secured by cryptography. Bitcoin lives digitally on a blockchain, a type of distributed ledger that registers transactions by cryptographically linking together a string of blocks that cannot be altered after being recorded.
Bitcoin isn’t the only cryptocurrency. The second-largest one is ether, which is tied to the ethereum blockchain. Ethereum supports “smart contracts” that automatically transfer digital assets when certain preset conditions are met. Other major types of cryptocurrency include stablecoins, which are tokens linked to a hard currency such as the US dollar, and altcoins, a wide range of cryptocurrencies that apply blockchain technology in more specialized ways. And don’t forget memecoins, which are based on images, videos, phrases, or even dog breeds such as the Shiba Inu, which inspired Dogecoin and Shiba Inu Coin. All told, there were more than 5,000 cryptocurrencies with a total market cap of about $2.5 trillion as of…
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