Cryptocurrencies are digital, decentralized, and encrypted, making them a new paradigm for money. They eliminate the need for centralized intermediaries such as banks or monetary institutions to enforce trust and police transactions between two parties. They also reduce the risk of a large financial institution setting off a global crisis like the one that occurred in 2008.
Investors have been leaning into crypto over the past few years. According to a 2021 Fidelity Digital Assets study, 71% of US and European institutional investors intend to allocate more capital to crypto in the future. However, it’s important to remember that cryptocurrencies are volatile, and their value may fluctuate widely. It’s essential to invest only what you can afford to lose. And because cryptocurrencies are not securities, they do not benefit from the same federal and state investor protections that registered investments receive.
The first cryptocurrency was Bitcoin, created in 2009 by Satoshi Nakamoto (a pseudonymous person or people). The blockchain technology that powers Bitcoin allows for peer-to-peer transactions without a central authority. Transactions are recorded and verified on a network of computers that all share the same copy of the blockchain, so any change to the record is instantly updated across all the computers. This removes the need for expensive third-party verification like a bank verifying a credit card transaction or a notary signing a document. This lowers costs for consumers and businesses.
Some online stores, such as Overstock and Newegg, now accept Bitcoin for purchases. Other sites let you buy gift cards with Bitcoin for use at places that don’t accept it directly. And more restaurants, coffee shops, and services for your home or office are starting to accept crypto. This can make paying for services convenient and private, especially when dealing with people in other countries.
Crypto can also help with international donations and transfers as it can be sent between users quickly and at a low cost, even while bypassing traditional banking processes. This can be particularly useful for refugees who need to keep access to their funds.
Other uses for blockchain technology are emerging, such as voting. The immutability of the blockchain could help ensure that votes are counted fairly and that bad actors can’t tamper with physical ballots. It could also be used to verify identities in transactions, which can be challenging with conventional methods.
Some people are using cryptocurrencies as savings or for retirement. But because cryptocurrencies are highly volatile, they’re not suitable for long-term investment. In fact, some experts believe that the volatility will eventually cause a majority of investors to abandon them for safer investments.