Cryptocurrency is digital money that doesn’t require a bank or financial institution to verify transactions and can be used for purchases or as an investment. Instead, transactions are recorded on a blockchain, an unchangeable ledger that tracks and records assets and trades. But there are risks when it comes to buying, selling, and spending crypto, including eye-popping price swings and uncertainty over future laws and regulations.
There are also a number of ways to purchase cryptocurrency, including on centralized exchanges, peer-to-peer platforms, and mobile apps. Some people choose to invest in crypto, hoping it will grow in value over time and eventually become a replacement for traditional currencies. Others buy crypto to pay for goods and services at merchants that accept it. And some people use it to make international payments that are faster and cheaper than wire transfers.
When investing in crypto, it’s important to diversify your portfolio. Don’t put all of your money into one currency, and look for reputable projects that have a clear plan for how they will distribute their tokens. A reputable project will also have publicly available metrics that show how widely the currency is being used and, in some cases, an explanation of how its technology works.
Buying and selling crypto can be expensive, especially on centralized exchanges. But you can reduce those costs by using a decentralized exchange or peer-to-peer platform. In addition, converting your crypto into cash has become easier than it used to be.
While it’s possible to lose money when investing in crypto, it’s not as common as with other investments. However, some experts believe that cryptocurrencies are overvalued and could decline significantly in the near term. The volatility of many cryptocurrencies can be challenging to stomach as an investor, and wild shifts in price may cut against the basic ideas that most cryptocurrencies were created to support.
There are also potential tax issues when it comes to crypto. If you sell a cryptocurrency for a profit or use it to buy goods and services, you may be required to report that transaction on your taxes. And the current law is unclear about whether crypto is considered a currency or an asset, making it difficult to know what kind of taxes you might face in the future.