A cryptocurrency is a digital asset that uses encryption to offer secure transactions and maintain decentralization. The most popular example is Bitcoin, created in 2009. Proponents of crypto say it democratizes the financial system by taking power away from central banks and bankers.
It also allows people to send money across borders quickly and cheaply without the need for traditional currency conversions or international wire transfers. This can be helpful for people in places with unstable currencies, those living under foreign rule or those who need to send funds to family members abroad.
However, it can be incredibly volatile, and the returns on investing in some coins can be eye-popping, making them an appealing way to try to turn a quick profit. If you’re not prepared to weather wild swings in price or don’t have a solid grasp of the market and where it could go, crypto may be too risky for you.
Cryptos are designed to be a store of value, but they’re not yet widely accepted as a means of payment and large price fluctuations make them less effective as stores of wealth. They also lack the backing of a government or financial institution, so they’re not insured against losses. You can buy and sell cryptocurrencies on exchanges, purchase them from companies that accept them or mine them on your computer. Mining is a highly competitive process that requires enormous computing power and can use as much energy as a small country. It’s a big reason why the prices of many popular cryptocurrencies have skyrocketed.
The good news is that more and more businesses are beginning to accept Bitcoin and other cryptocurrencies for payments. You can use a search engine to find stores and other businesses that accept them, and some even have cards you can swipe at checkout, similar to a credit card. The cards can be a handy way to pay for your regular purchases and for larger once-in-a-while spends, but you’ll need to watch out for extra fees and exchange rates.
Whether you’re investing or spending, be aware that the laws around cryptocurrencies are constantly changing. They’re not regulated the same way that stocks are, and governments could crack down or change how they’re used. You should never invest more than you can afford to lose, and always diversify your investments. That’s true of all investments, but it’s especially important when you’re dealing with volatile assets like cryptocurrencies. Remember, the price of any asset can drop in a matter of seconds on nothing more than a rumor that turns out to be unfounded. It’s not something most new investors are ready for, and the price swings can be psychologically exhausting as well as financially devastating. If you want to invest in cryptos, make sure to do your research and follow the advice of a qualified professional.