Bitcoin and a multitude of other cryptocurrencies are constantly in the news, with prices rising dramatically and then plummeting quickly. With cryptocurrency prices at a long-time low, some investors are looking at whether it’s time to buy them to make some money.

Before you buy them, it is important to understand what cryptocurrencies are.

To begin with, currencies such as Singapore dollars and Indonesian Rupiah are typically used as units of measure, mediums of exchange and stores of value. Most currencies are issued and regulated by central banks or similar agencies in countries around the world.

Cryptocurrencies, on the other hand, are digital currencies set up by groups of individuals and secured using cryptography. New coins are created through a technique called mining, which uses computers to solve complex math problems.

Many of the cryptocurrencies are based on a technology called blockchain, which uses databases to track transaction histories and ownership. It records who has given what to who and who owns what on a digital ledger which is permanent and unalterable.

Since the blockchain keeps the entire history of a cryptocurrency and tracks all the movements, it is virtually impossible to create counterfeits.

Even though cryptocurrencies often have the three basic features of government-issued currencies, they are fundamentally different because there is no central bank issuing them.

Since these currencies don’t come under typical regulations, they also have higher regulatory, market, security and other risks. With no government backing and no intrinsic value, they are simply worth what buyers are willing to pay.

While Bitcoin was the first cryptocurrency and remains one of the best-known, Ripple XRP, Ethereum, Tether and Stellar round out the top five most valuable cryptocurrencies, according to CoinMarketCap. Altogether, there are actually more than 1,600 cryptocurrencies now.

In recent years, the value of cryptocurrencies surged dramatically.

The price of a Bitcoin, for instance, rose from about US$968 in early 2016 to about US$19,783 in mid-December 2017. Seeing big gains, speculators and even ordinary consumers rushed in to buy Bitcoins or other cryptocurrencies in the hope of making a fortune.

In December 2017, the Monetary Authority of Singapore (MAS) warned the public to act with extreme caution and understand the risks of investing in cryptocurrencies, saying “MAS considers the recent surge in the prices of cryptocurrencies to be driven by speculation. The risk of a sharp reduction in prices is high”.

That warning was prescient. From its high in mid-December last year, Bitcoin dropped steadily and eventually reached a price of about US$3,500 in mid-December last year, before rising slightly again.

Other cryptocurrencies plummeted as well. The total value of all cryptocurrencies reached about US$830 billion in January 2018, according to CoinMarketCap, then fell to about US$138 billion by late November.

Experts cite regulators’ actions to curb trading, hacking, disagreements within cryptocurrency communities' members, concerns about the solvency of some cryptocurrencies, increasing supplies, scams and higher interest rates among the reasons for the drop.

Despite that fall, cryptocurrency fans remain optimistic. After successfully predicting in July 2017 that the price would rise to more than US$5,000 by the end of last year, anti-virus software pioneer John McAfee predicted that Bitcoin’s price could hit $1 million by 2020 and has stuck with his forecast.

Other pundits also forecast gains, though often not as large.

Taking perhaps a more balanced view, consulting firm AT Kearney opined recently that Bitcoin celebrated its 10th birthday in October 2018 under clouds of doubt.

Despite cryptocurrencies having “collapsed spectacularly,” AT Kearney forecasts that they will shift to a state of post-crash maturation and Bitcoin’s market share will rise as other types of cryptocurrency coins lose their attractiveness.

Global investment giant Fidelity Investments seems optimistic as well, saying recently that it was launching a company for clients to trade and store cryptocurrencies.

Despite the optimism, risks remain and investing in cryptocurrencies is speculative.

HOW TO INVEST IN CRYPTOCURRENCIES

If you still want to buy cryptocurrencies, you will need to use a platform to communicate with traders, buy them and store them. A number of international and local firms provide those services.

Coinbase, for instance, is a global digital asset exchange that provides a marketplace for digital currencies, sends information about transactions to the appropriate blockchain network to be recorded, and serves as a digital wallet where you can store your currencies.

Another option is ItBit, headquartered in the United States, which similarly offers trading and custody services. And Japan-headquartered Quoine says its secure platform enables investors to buy and sell digital assets easily using Bitcoin, Ethereum and QASH.

Whether you choose one of these firms or another one, you’ll need to investigate the company carefully.

If you do buy cryptocurrencies, it would be better to buy several types so that you diversify your risk. Keep your anti-virus software updated, too, so no one can hack into your computer and steal your coins.

It remains uncertain whether the value of cryptocurrencies will rise again, and some see them as pure speculation. If you do decide to buy cryptocurrencies, it’s better to make them just a small part of your portfolio and to monitor them carefully to manage your risks well.