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Financial Fact: Cryptocurrencies and NFTs: What Are They and Are They Here to Stay?

Cryptocurrencies and non-fungible tokens (NFTs) are current financial buzzwords and have become increasingly popular investments. More than 22,000 virtual currencies are on the market, with Bitcoin being the most prominent. But what are cryptocurrencies and NFTs? And are they just a fad or the future of finance?

Cryptocurrencies, such as Bitcoin, Ethereum, and Litecoin, are digital assets or money secured by encryption. They are decentralized, meaning no single organization or entity controls them, and they are powered by blockchain technology. Unlike traditional currencies, cryptocurrencies are not backed by a central bank or government, and they cannot be printed or minted. Instead, they are created and stored entirely on the blockchain, a digital ledger of transactions across a business network of computer systems.Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system.2

NFTs are a type of cryptocurrency that is unique and cannot be replicated. They represent ownership of virtual artwork, music, videos, and even virtual real estate. Unlike other types of cryptocurrencies, NFTs are not interchangeable, and each one is one-of-a-kind. They are typically stored on the Ethereum blockchain and can be bought, sold, and traded like any other cryptocurrency.

Cryptocurrencies are highly liquid. Transactions are fast and can be settled in minutes, while funds can be transferred anywhere in the world without third-party intermediaries like banks or payment processors.

On the other hand, because they are decentralized, prices can fluctuate wildly, and investors may not be able to recoup their losses in a timely manner, if at all. In fact, most cryptocurrency transactions are irreversible and cannot be cancelled. In addition, the fledgling cryptocurrency markets lack regulation and oversight, although there is a strong movement to regulate cryptocurrencies by federal and state regulators. In this volatile and largely unregulated arena, cryptocurrency failures have become common. The lack of oversight can leave investors vulnerable to scams, frauds, and technical glitches that may result in significant losses. Many investors also rely on exchanges or other third-party custodians to store their cryptocurrency, which makes them susceptible to theft or loss.  Also, the climate-change conscious are asking questions about the environmental impact of digital funds since the energy-intensive process of mining cryptocurrencies and processing NFT transactions can have a significant carbon footprint.3 Finally, market manipulation is a substantial problem in the industry, with influential people, organizations and exchanges acting unethically.

So, are cryptocurrencies here to stay? Or will they go away? According to many financial leaders, they will likely become a permanent part of the global economy in some way, shape or form. Also, many governments, including the United States, are actively studying the creation of central bank digital currencies. Only time will tell how cryptocurrencies and NFTs evolve. They are still relatively new technologies, and there are still many unknowns about them.4

The more important question for the average investor is whether investing in cryptocurrencies is currently a good idea for retirement. Given the risks and uncertainty around future performance, cryptocurrencies and NFTs are probably not an appropriate form of retirement investment for most investors at this time. Contact your financial planner for more information.

  1. Forbes, “What is Cryptocurrency?” February 16, 2023, by Kate Ashford
  2. Euromoney Learning, “What is blockchain?” 2023 https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain
  3. Forbes, “What is an NFT?” March 17, 2023, by Robyn Conti
  4. Motley Fool, “Is Crypto Here to Stay?” June 27, 2022, by Nicholas Rossolillo
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