What Is Cryptocurrency?


Over the past few years, crypto has gone from a niche experiment to a sprawling trillion-dollar financial sector, complete with its own heroes and villains. But it’s still hard to wrap your head around, especially if you don’t plan on ever investing in this world of cryptocurrency speculation. So we’re here to help.

The term “crypto” refers to the technology that powers digital currencies like Bitcoin. It also underpins other kinds of technologies, including blockchains that can be used for non-financial purposes, such as tracking streaming music rights or hosting new social media platforms. But for most people, the term is still synonymous with speculating on Bitcoin’s price or betting on which virtual coin will hit the big time.

But the broader crypto ecosystem has grown well beyond that, with investors pouring billions of dollars into start-ups that aim to use blockchains for all sorts of other applications. Whether it’s storing medical records, tracking streaming music or powering new social media platforms, crypto fans believe that the technology will eventually replace many of the functions currently performed by traditional businesses and government agencies.

Cryptocurrency investment has become so popular that even rapper Cardi B is on the record as being crypto-curious. But for crypto to truly take off, it’s going to have to be used as a form of payment by billions of people. That would require convincing them to trust a currency that fluctuates in value, isn’t backed by any country’s monetary authority and can’t be retrieved if it’s stolen.

A big part of the reason why so many people hold crypto is that it provides a way to invest money without the need for an institution like a bank or broker to oversee the transaction. Cryptocurrency investments are made through a process called peer-to-peer trading, where people from all over the world connect over the internet to exchange virtual tokens. This allows them to make investments that would be impossible if they were centralized in the hands of just a few companies or investors.

In the early days of crypto, its properties of anonymity and censorship-resistance made it attractive to people who needed to escape the prying eyes of law enforcement or other institutions. That includes white supremacists, who have reportedly made millions of dollars from the crypto boom.

But the crypto community is far from a monolith, with right-wing Bitcoin maximalists believing that crypto will liberate them from governmental tyranny; left-wing Ethereum fans hoping to overthrow the big banks; and speculators with no ideological attachments who just want to turn a quick profit. These groups often fight with one another, but the industry remains a diverse and growing place. As the space grows, regulators are stepping up their oversight. So it’s important to do your research before making any investments. And, as with any investment, it’s wise to diversify your portfolio so that you’re not too exposed to any one cryptocurrency. That’s why some of the wealth advisers we spoke to recommend that you allocate a small portion of your portfolio to cryptocurrencies.

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