The fear of missing out is a powerful force. 

Everyone wants to get on board with the next big thing as quickly as possible. Nothing’s worse than being the one who missed out right? A candidate for the next big thing is cryptocurrency, but what exactly is cryptocurrency? 

“Cryptocurrency is currency backed by blockchain, without anything behind it that people are choosing to trust,” said Britton McKay, Ph.D., associate dean for Students and External Affairs and professor of accounting.

Let’s break that down a bit. A blockchain is a unique form of database that records data in a chain based on when it is entered. It can be used in many ways, but in regards to cryptocurrency, it is mainly used to keep record of transactions. The blockchains used in most cryptocurrencies, like Bitcoin, are decentralized. 

No one person has control over it. No one can edit or delete data and every transaction is permanently recorded once processed. This creates a system of rigid transparency, as the blockchain is always available to the public. 

So, does this mean cryptocurrency is actually safe and risk averse? Not exactly. 

Complete decentralization comes with its pros and cons. “The reason people like cryptocurrencies is there is no federal oversight. There is no oversight period,” says McKay. She also mentions just how volatile cryptocurrency is, with swings up and down ranging wildly from the low hundreds to the high thousands to zero, all in an unpredictable manner. 

Notable cryptocurrency that originated as a joke, Dogecoin, lives and breathes on the whims of Elon Musk. A rogue tweet could triple your investment or sink it into the dirt. Overall, the emphasis is on the fact that investments in crypto are often all but stable.

Let’s return back to breaking down that earlier statement. What does McKay mean when she says a cryptocurrency is “without anything behind it?”

The U.S Dollar was originally backed by federal gold reserves. Each dollar reflected the value of a certain amount of our gold reserves. 

However, we have long since left that idea behind. In modern times, the only thing backing up the U.S Dollar is faith in the United States government and its ability to enforce its value. Cryptocurrencies are in a similar position, where they have no items of value backing them, but they also lack the backing of a world superpower. 

The only backing they have is people’s belief that it has value. That is why people who have cryptocurrency are eager to spread awareness and promote whichever cryptocurrency of their choosing. The more people believe in their currency, the more value it generates for them. 

This particular facet of cryptocurrency has shown its face through recent high-profile scams regarding cryptocurrency. McKay shared a simple suggestion on how to avoid scams: “Anyone who will guarantee a return, is someone you should walk away from.” While some cryptocurrency options are safer than others, returns are never guaranteed. 

An important detail to note for student investors is how interacting with cryptocurrency affects you directly. For one thing, as far as the federal government is concerned, cryptocurrency is taxable property. Even just trying to capitalize on your investments could adversely affect your FAFSA status due to the incurred income tax.

Ultimately, the world of cryptocurrency is a very volatile environment that many people don’t understand. Even those who have been studying it for years admit that it is extraordinarily complex and doesn’t always make sense. 

While the fear of missing out may compel you to dive right in, it is important to be wary and thoughtful of where you invest your money.