Crypto is a lot of things — including a way to pay for stuff. But it’s also a platform for weird, interesting and thought-provoking projects that aren’t easily explained. It’s also a place where new fortunes are being created at a rate that dwarfs anything since the discovery of oil, with some people becoming millionaires essentially overnight. But it’s also a complicated and volatile investment with real-world consequences. Here are a few things you should know before you invest your hard-earned cash in cryptocurrency.
1. Decentralization
One of the biggest selling points for cryptocurrencies is their decentralization, and by extension, security. Each coin has a blockchain, which is a continuously-verified record of every transaction ever made on the network. Because it’s a distributed database, no single company or government oversees it. Instead, the work is spread out among many computers across the internet, which rely on a complex algorithm to verify and approve transactions. This makes it much harder to hack, and anyone who tried would have to break into a vast network of computers simultaneously in order to alter a single record.
2. Transferability
Another big selling point for cryptocurrencies is their ability to move quickly and cheaply between accounts. This makes them a great choice for people who want to avoid banking fees, and it has attracted a large group of users that the mainstream financial system doesn’t cater to: criminals, tax evaders, and those looking to make anonymous purchases. It’s also a popular choice for people who travel frequently, as it can cut down on currency exchange fees. For example, Orchid is a company that offers both a secure VPN and the digital currency OXT, which allows travelers to spend money globally without incurring fees or having to change their local currency.
3. Volatility
Finally, it’s important to remember that cryptocurrencies are extremely volatile. Prices can spike and drop dramatically, and if you’re not prepared to stomach that kind of risk, it might not be a good idea to invest in them. Also, the fact that crypto isn’t regulated like a normal business means that it can be easier for scammers to take advantage of it. It’s also harder to achieve diversification with cryptocurrencies than with stocks, as it’s more difficult to spread your money around the world and between different companies and industries.
4. Environmental Impact
Despite its promise of global decentralization and low fees, cryptocurrencies have their own environmental costs. They require a massive amount of energy to mine, and the Bitcoin blockchain in particular is notorious for its electricity consumption. This isn’t going to change anytime soon, and even if miners switched to renewable energy sources, it would have an effect on the environment.
Overall, cryptocurrencies have been both exciting and controversial, and they aren’t for everyone. If you’re interested in them, be sure to research thoroughly before investing. But don’t be discouraged if you don’t understand them completely; there’s always something new to learn, and the crypto space is a dynamic and fascinating place.