Crypto is a new way to handle money that offers privacy and lower fees than traditional payments. But it’s not without hurdles and risks.
Like traditional currencies, cryptocurrencies are used to buy and sell goods and services. But they’re not backed by a central authority like the government or a bank, and are instead managed by computers in a peer-to-peer network. Crypto transfers are vetted by a technology called a blockchain, which records every transaction on a public record that everyone can see. When someone wants to transfer crypto, they send instructions to the network. The information is combined with other recent transactions into a “block” and then added to the blockchain.
Once added, the block can’t be altered or deleted, and it’s impossible to fake or reverse a transaction once recorded. This means that crypto is safer than regular online payments because it’s hard to cheat or defraud.
People use cryptocurrency to pay for things online and in stores. When you make a purchase, the seller will show you an address or QR code that you can scan to send the correct amount of crypto to them. More and more stores and online services are starting to accept crypto as payment, but it’s not yet widespread. And the price of crypto can swing dramatically, making it tricky for buyers and sellers to plan ahead.
Crypto isn’t regulated like a stock, so there’s no guarantee that you’ll get your money back if something goes wrong. And while it’s typically not taxable as income in the US, you may still have to report any gains from trading crypto on your taxes.
Buying and selling crypto can be complicated, especially for newcomers. You’ll need to choose a trustworthy exchange, set up a wallet, and learn about the basics of crypto. A wallet is a secure place to store your crypto, and it’s important to keep it safe. Choose a strong password or seed words, and don’t share them with anyone. Store your wallet on a hardware device or a VPN service, and don’t use it on public Wi-Fi.
The value of crypto is based on supply and demand. Supply refers to how many coins are available to buy at any given time, and demand is how much people want to own the currency. So if there’s more supply than demand, the price will drop. But if demand rises, the price will increase.
There are thousands of different cryptocurrencies, so it’s important to diversify your portfolio. Large, established cryptocurrencies tend to be more stable than newer ones. But as with any investment, be sure to understand the full risk and return potential of any crypto you invest in. And always consult with a professional financial advisor before making any big decisions.