Cryptocurrency has become a buzzword on social media and newsfeeds, but it can still be confusing to new investors. Crypto is digital money that’s not backed by traditional financial institutions or governments and can be used for purchases or as an investment. Its prices are highly volatile and it doesn’t have the same regulatory protections as registered securities, so it can be risky for investors.
Crypto is based on blockchain technology, an online ledger that tracks transactions. While some people hold crypto as a store of value, others invest in it with the hopes that it will increase in value and yield a profit. Crypto is available in two forms: coins and tokens. Coins are more like traditional currency, while tokens represent ownership of assets on a blockchain.
While there are many reasons to invest in crypto, it’s important to consider your goals and do your research. Investors may be drawn to the possibility of massive gains, but it’s important to remember that most crypto investments pay out the largest gains to those who hold on for the long term. It’s also worth remembering that crypto can be hacked, and many investors have lost their holdings in the past.
It’s also important to think about the tax implications of investing in crypto. The current US tax code requires you to report any gain when you sell or exchange a cryptocurrency for cash. If you’re buying and selling regularly, this could make a big difference in your overall profit.
You’ll also need to decide how you want to buy and sell crypto. Some cryptocurrencies are traded only on regulated exchanges, while others can be purchased through private marketplaces. It’s important to research each of these options to ensure you’re using a reputable exchange and aren’t being charged excessive fees. Additionally, if you’re trading crypto in the United States, you may be subject to federal and state regulations that affect how you purchase and sell.
Another factor to keep in mind is that cryptocurrency can be very energy-intensive. In order to verify transactions on the blockchain, miners use powerful computers to process complex calculations. This can require a lot of electricity, which is why some cryptos are designed to use less power than others.