Cryptocurrency, or crypto, is a form of digital currency that uses blockchain technology to conduct transactions. It was first introduced in 2009 by a person or group called Satoshi Nakamoto, and the most famous cryptocurrency is Bitcoin (with a capital B).
Transactions with cryptocurrency don’t take place in physical currencies like bills or coins you can carry around, nor do they occur on traditional banking systems that process wire transfers. Instead, they’re conducted online using a special app or platform. The platform verifies the identity of each party to a transaction, records it in the public ledger, or blockchain, and then broadcasts it to all participating parties. Once a blockchain transaction is recorded, it can’t be changed or deleted. This makes it very secure.
Blockchain could also make it easier to transfer money internationally, as it allows people to send funds without worrying about business hours or the cost of traditional currency conversions. It’s possible to send Bitcoin to someone in another country for as little as a few dollars. This is especially useful in the event of natural disasters or in helping refugees retain easy access to funds.
While it may be difficult to predict the future of cryptocurrencies, their value as an investment asset is increasing. They can provide a means of diversifying your portfolio and potentially producing outsized returns. However, their newness makes them challenging to understand and compare to other assets, and a lack of historical data creates an obstacle to establishing a well-diversified portfolio.
Cryptos are also gaining ground as a way to pay for goods and services, with more retailers and service providers adding them to their offerings. It’s important to note, though, that these transactions are not backed by any government or financial institution. This creates a unique risk that should be carefully considered before making any investments.
For businesses considering integrating crypto into their operations, it’s critical to think about the full spectrum of strategic questions and operational complexities. This will require engagement across the board, including your board and committees, finance, tax, accounting, treasury, legal, operations, and technology departments.
In addition to understanding the technical aspects of crypto, you should become familiar with the broader ecosystem and the different ways it can be used. It’s a fast-moving and evolving landscape, so it’s important to keep up with the latest developments.
Once you have a good understanding of the basics, start by investing only what you’re willing to lose. And don’t forget to back up your private key! This is the only way you’ll have access to your wallet and your funds. Write down your seed words on a piece of paper, and store it somewhere safe where it won’t get wet or lost. It’s also a good idea to avoid public Wi-Fi when using your wallet, and use a password-protected hardware wallet if possible. This will help to prevent hacking and other security breaches. Taking the time to do your homework before you invest can greatly increase your chances of success.