Investing Basics: Bitcoin and Blockchain

Cryptocurrencies like Bitcoin, Ethereum, and
Litecoin are digital currencies that offer a peer-to-peer payment system that is independent
of a bank or credit card company. These cryptocurrencies, or coins, use blockchain
technology—which is designed to make transactions of all kinds secure, transparent, and accurate. A blockchain is a record of digital transactions
that acts as a public ledger. The ledger is maintained by a computer network
which verifies transactions through solving complicated cryptographic math problems. It works like this: when an individual makes
a transaction, an encrypted message describing the transaction is sent over the network. The computers in the network then race to
solve the equation to decrypt the message. Once the equation is solved, the transaction
is made and recorded in the public ledger. This process of maintaining the blockchain
is often called mining, because those who successfully verify transactions receive cryptocurrency
as a reward. The mining process is one way that an individual
can acquire cryptocurrency or coins. Individuals can also acquire coins when they
accept them as payment or buy them from a digital exchange. There are some potential advantages to investing
in cryptocurrencies. Many investors see them as a speculation opportunity. Others believe they can help balance risk
by adding diversity to a typical portfolio. However, like many emerging new technologies,
cryptocurrencies are high-risk. The price of coins is extremely volatile and
can change by hundreds or even thousands of dollars in a single day. Additionally, since cryptocurrencies are not
stored in bank or brokerage accounts, there are no regulatory protections available. Though TD Ameritrade doesn’t currently offer
the ability to buy or hold cryptocurrencies directly, there are ways to gain exposure
to cryptocurrencies without actually owning them. For example, clients can buy stock in companies
associated with cryptocurrencies, like those that create hardware used for mining. Clients can also invest in funds with cryptocurrency
holdings, and qualified clients can trade Bitcoin futures. These types of investments allow investors
to speculate on the direction of cryptocurrency prices but still have unique and significant
risks to consider. No matter how you choose to participate in
the cryptocurrency market remember that as with any investment, it’s important to determine
your risk tolerance, conduct thorough research, and monitor your positions carefully.

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