Crypto makes it possible to transfer value online without the need for a middleman like a bank or payment processor, in near-real time, around the world, and for very low fees. Most cryptocurrencies are designed to be secure and fast, with no central authority and built on decentralized networks of computers that manage transactions. Many people like to shop with crypto because it gives them a sense of pride and excitement to be part of an innovative new financial system, while others give it as gifts or tip online content creators to show appreciation.
The values of cryptocurrencies are determined by supply and demand, similar to how the price of stocks fluctuate. Supply refers to how much cryptocurrency exists at any given moment and demand is a measure of how much people want it, as evidenced by how often they’re searched for on search engines or traded on exchanges. Crypto prices can also be influenced by news about how companies plan to use it, world events, and how governments choose to legislate and regulate the industry. Some cryptocurrencies are pure investments, while others are meant to serve specific functions on their respective blockchains, like XRP and Ethereum. Some, such as Tether and USDC, are stablecoins that try to stay close to the value of a fiat currency, like the dollar.
If you’re thinking about investing in crypto, it’s important to do your research. Consider things like the market history and performance, minimum investment requirements, and transaction costs, which can vary across exchanges. It’s also a good idea to diversify your portfolio, so you don’t put all your eggs in one basket. The cryptocurrency market is very volatile, so you may experience dramatic swings in price over short periods of time. If you’re not comfortable with that kind of risk, crypto might not be right for you.
While it’s still early for most cryptocurrencies, some have already established themselves as global leaders. Bitcoin has the largest market cap, followed by Ethereum and Bitcoin Cash. There are thousands of other cryptocurrencies, however, and each has its own unique features. Some are similar to Bitcoin but have added capabilities, while others use different technologies or have a unique theme.
Some cryptocurrencies are pure investments, while others provide a useful service on their blockchains or have unique themes. For example, Dogecoin started out as a meme but has become a valuable asset. Other cryptocurrencies are competitors to Ethereum, such as Cardano and Litecoin, while others have added security features or shortened transaction times.
The legal status of cryptocurrencies is still evolving, and it’s important to check local laws before buying or selling. In the US, for instance, you must report any gains or losses on your tax return if you buy or sell cryptocurrency for more than a hobby. This is one reason why it’s best to hold your crypto in a wallet that you control, rather than storing it on a website or exchange that might go out of business.