Cryptocurrency has been making headlines across social media and news feeds, but many people don’t fully understand what it is or how it works. As cryptocurrency continues to rise in popularity, it’s important that investors and consumers take the time to educate themselves about how it works.
Crypto is a digital currency that doesn’t rely on central banks or trusted third parties to verify transactions and create new currency units. Instead, it uses cryptography to record transactions on a public ledger called a blockchain. The blockchain is a publicly accessible record of all transactions that are verified by the crypto community.
While there are thousands of cryptocurrencies, the best known one is Bitcoin. With a market cap of more than $70 billion, Bitcoin is the largest cryptocurrency by value and dominates the crypto space. The price of a Bitcoin fluctuates in response to a variety of factors, including speculation, supply and demand, and the performance of other cryptocurrencies.
When considering whether to invest in a particular cryptocurrency, it’s important to look at how well established and widespread it is. A reputable crypto project will make information about its platform and how it will distribute tokens available to the public, and it will often publish metrics about the number of users and transactions on its network. Investors should also consider who’s behind the project and how much capital is already committed to it.
It’s also important to consider how a crypto will be used, because this could influence its value. For example, if governments crack down on crypto, it may lose value. Crypto can be used to purchase goods and services online, in some physical stores, and as an investment. In the United States, current tax law treats cryptocurrencies as property and not as investments, meaning that when you sell or exchange your crypto for money or other assets, you’re liable for capital gains taxes.
In addition, you should be aware that cryptocurrency is a risky investment and may not be suitable for everyone. It is not federally regulated and is not protected by the Securities Investor Protection Corporation or the FDIC, so you could potentially lose your entire investment. Additionally, crypto wallets can be hacked, and some have even been shut down completely.
When investing in cryptocurrencies, you should only do so with money that you can afford to lose. It’s also important to remember that prices can go up and down quickly, so you should only invest what you’re comfortable losing. If you’re interested in speculating on the future direction of crypto prices, CFDs trading can offer an attractive way to do so without having to own any underlying coins. You can go long (buy) to speculate on rising prices or short (sell) to speculate on falling prices. Both options offer leveraged trading, which means that you can open a position with a smaller deposit than would otherwise be required to buy or sell an underlying coin directly.