As technology advances and the world becomes more connected, the landscape is changing rapidly. New trends and innovations seem to come out of left field, often generating their own jargon that can be difficult to keep up with. For example, the blockchain, virtual reality and cryptocurrencies are all relatively new to many investors, yet they’re already making a significant impact in the economy. These technologies are also often met with resistance from people who derive their power from the status quo, but they’re driving global growth and increasing efficiency in areas like financial transactions and banking.
Cryptocurrency is an investment in digital money that’s secured by cryptography, a set of protocols that make it nearly impossible to counterfeit or double-spend. These tokens can be used to pay for goods and services, store value, and invest in projects or businesses. They’re designed to be decentralized to varying degrees, meaning they’re not issued by any central government or bank, and they operate according to computer software that anyone can monitor on the internet.
Many analysts believe cryptocurrencies will become a larger part of the financial ecosystem, replacing some of the functions currently performed by banks and other institutions. This could include everything from paying for dinner to buying virtual real estate in the metaverse to registering for the latest space tourism trip.
Unlike traditional currencies, which are printed by the government and stored in banks, cryptocurrency is held digitally and stored in wallets. Investors buy these digital assets with the belief that if demand increases, their value will rise as well. This interplay of supply and demand is why cryptocurrencies are sometimes called “price-volatile.”
While it’s easy to find information about the latest crypto trends, it can be difficult to understand the technical details behind the crypto market. Some popular cryptocurrencies are Bitcoin, Ethereum and Tether. Bitcoin was developed primarily to be a form of payment that isn’t controlled by a central government; Ethereum enables developers to build automated applications on the blockchain; and Tether is a stablecoin that keeps its value pegged to existing currencies, such as the dollar.
Many brokerages offer ways to invest in cryptocurrencies, including some exchange-traded funds (ETFs). The risk of high-risk investments such as these should always be considered carefully, and it’s generally recommended that they make up only a small percentage of your overall portfolio. In addition, if you’re investing in crypto, it’s important to diversify your holdings to reduce the risk of losing all of your money.