Cryptocurrency, or crypto, is a way to buy, sell and trade digital value without the need for central banks or other financial institutions. There are thousands of different cryptocurrencies, and they’re mostly used to pay for goods and services or as speculative investments. But crypto isn’t just a currency; it’s also an infrastructure that can support all sorts of other applications, from storing medical records to tracking streaming music rights to hosting new social media platforms. Venture capitalists are investing billions into blockchain start-ups because they think these non-financial uses will expand the appeal of crypto to consumers and businesses alike.
The bottom line is that crypto is still a new and complex technology. It’s important to understand the basics of how it works before diving in. That’s why we created our Cryptocurrency Explained course, which covers everything you need to know about crypto in 10 lessons.
What are the benefits of crypto?
Critics of crypto often point to its price volatility as a sign that it’s a risky investment. But the fact is that cryptocurrencies’ values are largely determined by perceptions of their worth, just like any other asset. So while they’re more volatile than stocks or bonds, they can still be a good investment for some people.
Other arguments for crypto focus on the power that it gives to individuals. Because cryptocurrencies aren’t tied to any country or financial institution, they can be transferred anywhere in the world, and they’re accessible regardless of how governments or other big financial players act. This has made them popular with people who want to avoid corruption or censorship in their home countries, and it’s also helped some groups that have been left out by the global finance system — including criminals, tax evaders and dissidents.
A final benefit: Because cryptocurrency transactions aren’t backed by any physical assets, they’re less vulnerable to robbery or fraud. But this also means that anyone can create and transfer a new cryptocurrency, potentially destabilizing the market.
There are some big caveats to all of this, however. For one, most cryptocurrencies are created on networks that require lots of energy to maintain. The Bitcoin network, for example, uses an estimated 200 terawatt-hours of energy per year. That’s a lot, and it contributes to climate change.
The bigger issue is that many of these networks are built on top of flawed, outdated technologies. So while they may offer a glimpse of the future of finance, they’re still plagued with problems that could leave them insecure or even unusable. This is why it’s important to keep an eye on developments in the crypto space, especially as new technology emerges that promises to improve security and reduce costs. But most of all, it’s important to remember that crypto is a tool that can be used for both good and evil. It’s up to users to make sure they don’t let bad actors use it for ill-intent. This includes avoiding fake or misleading websites and using caution when buying or selling any cryptocurrency.