Cryptocurrency is digital money that doesn’t require a bank or financial institution to verify transactions and can be used for purchases and investments. Transactions are recorded on a blockchain, which is an unchangeable ledger that tracks assets and trades. There are more than 1,600 cryptocurrencies, but Bitcoin and Ethereum are the most popular.
The main purpose of cryptocurrency is to provide a digital alternative to traditional fiat currencies. But it also offers other features, including borderless transfer, low fees and fast processing times. It’s often much cheaper than sending money internationally via wire, and it can be done at any time of day or night. And there are no limits to how much money you can send or receive.
As a form of investment, crypto is a volatile asset that can experience sharp price swings. But it can also offer a way to diversify your portfolio and earn income. The key is to do your homework and understand the risks before making any decisions.
Scammers can target investors by pretending to be a trusted source or a company you know. They may make big claims about returns or promise to grow your investment. They may ask you to deposit funds into an online account. Or they may steal your private keys and take your cryptos. These scams are known as “phishing,” “ransomware” and “cryptojacking.”
Whether crypto is a good investment depends on your tolerance for risk, both financially and psychologically. And there are other considerations, too, such as the regulatory environment. The Securities and Exchange Commission (SEC) has cracked down on initial coin offerings, or ICOs, and other agencies have weighed in as well. Regulation is changing rapidly, and it’s important to keep up with the latest developments.
In addition, cryptocurrencies are often not backed by any tangible assets and do not have the same legal protections as other investments. This makes them more vulnerable to hackers and other risks.
The value of a cryptocurrency is determined by supply and demand. Supply is the amount of the currency available, and demand is the willingness of people to buy or use it. Some cryptocurrencies gain their value by being backed by other assets, like real estate or gold. Others, called stablecoins, attempt to stabilize their prices by pegging them to existing currencies.
Some cryptocurrencies can be bought and sold directly, but most are traded on exchanges, which act as marketplaces. Some exchanges support a variety of trading pairs, including those between different cryptocurrencies and the U.S. dollar. Other exchanges enable you to pay for goods and services with crypto. You can also get a debit card that converts paid cryptocurrencies into cash automatically on the back end, and some companies offer services that add functionality to your crypto wallet, such as spending and saving capabilities. Despite these innovations, crypto remains in its early stages. But it’s creating unique opportunities for expanding economic freedom around the world, even in countries with tight government controls over citizens’ savings and payments.