Cryptocurrency is digital money that doesn’t need a central authority to verify transactions. Instead, it uses a distributed ledger known as a blockchain to track purchases and investments. A blockchain is a list of records, called blocks, that are linked and secured using cryptography. Each time a new block is added to the blockchain, it gets copied and spread across a network of computers. Each computer then updates its copy of the blockchain to reflect the new information. This process is designed to be fast and secure.
In addition to its technical merits, the blockchain’s design gives people around the world a way to participate in the economy without having access to banking services or trust-based infrastructure. This allows people to send and receive payments in a matter of seconds, even across international borders. It also lets individuals bypass middlemen like banks and credit card companies, which often charge fees.
Some cryptocurrencies are also designed to be used as a store of value, holding their purchasing power over time. However, large price fluctuations can make it hard to know whether a cryptocurrency will actually be worth the amount you paid for it.
Investors buy cryptocurrencies in the hope that their value will rise, netting them a profit. In other cases, consumers use cryptocurrencies to pay for goods and services that aren’t available on traditional payment platforms. Using cryptos can save on transaction fees and allow consumers to shop with more choice.
Many retailers now accept Bitcoin. For example, the Microsoft Xbox store and Twitch let you pay for games and subscriptions with it. And more and more physical stores, from coffee shops to hotels, are beginning to accept it too. People can also spend their cryptos online. For smaller, more frequent buys, it’s possible to use a crypto debit card, which works in stores and online as well as at most major exchanges.
A small number of cryptocurrencies are created through a mining process, in which users’ computers solve complex math problems to verify transactions on the blockchain. The owners of those computers are then rewarded with cryptocurrency. While this process can be energy-intensive, most cryptocurrencies have lighter environmental footprints than traditional payment systems.
Despite their popularity, cryptocurrencies have some significant limitations. For one, they don’t offer the same consumer protections as traditional financial products. If your crypto is lost or stolen, there’s no guarantee that you’ll get it back. This is a big reason why it’s important to understand the basics of crypto before you invest. It’s also a good idea to seek out expert advice before investing in crypto.