Cryptocurrencies are digital assets that use a special computer code to allow peer-to-peer transactions without a central authority, like a bank. They’re sometimes used to make purchases online or in stores that accept them, but they can also be stored and redeemed for cash later. The best-known cryptocurrency is Bitcoin, which was first launched in 2009. Other cryptocurrencies use similar technology but have different features.
The value of a cryptocurrency depends on a number of factors, including how many people want to buy or own it, how useful people think it will be in the future and whether it’s backed by any real-world assets. Stablecoins, for example, try to reduce volatility by pegging their value to existing currencies, such as the dollar.
In addition, some people buy cryptocurrencies to invest in them. This can lead to big gains or losses, depending on the market and how the investment is managed. Investors must carefully consider these risks before making any decisions to invest in crypto.
Many online stores, from giants like Overstock to smaller boutiques on Etsy and Shopify, now accept Bitcoin for payments. It’s also possible to buy some services, such as home cleaning or personal coaching, with crypto. The health sector is getting in on the action, too, with some doctors and wellness retreats accepting Bitcoin for payment. And it’s possible to travel with crypto, with sites such as CheapAir and Expedia letting you book airfare and hotels with the digital currency.
It’s also easy to transfer crypto between accounts on a variety of exchanges, or platforms that buy and sell coins. But remember that these platforms are unregulated and have been hacked, leading to losses for some consumers. And because crypto is not insured by the federal government or FDIC, you should only buy with money you can afford to lose.
Some people use crypto to send money to friends and family, or as an alternative to traditional wire transfers. This can be cheaper and faster than using a bank, and it can help avoid fees. It can also be helpful for refugees who may need to move from one country to another and need to maintain access to their funds.
Before buying or selling crypto, consider the risks and your own financial situation. It’s a good idea to have an emergency fund, a manageable level of debt and a diversified portfolio of investments. And don’t be fooled by YouTube videos that promise huge returns on the latest crypto-based craze. These are often false hype that could hurt your finances.