Cryptocurrency is a digital asset that uses blockchain technology for secure, decentralized transactions. It gained popularity in recent years as an investment vehicle, and is also used to pay for goods and services. While some people view it as a store of value that can protect against inflation, others see it as an unstable and risky investment. Regardless of your position on the topic, it’s important to understand how cryptocurrency works before investing in it.
There are many different types of cryptos, each with their own purposes and uses. Most fall into one of the following categories:
Investment cryptos: These are cryptocurrencies that are designed to gain value over time, usually through a combination of supply and demand. Their prices are influenced by the potential for future growth and the current level of adoption. Some also have a fixed value, pegged to a fiat currency like the US dollar. Stable cryptos: These are cryptocurrencies that try to maintain a steady price. Their prices may be influenced by news about how companies plan to use them or by world events. Utility cryptos: These are cryptocurrencies that offer specific functions on their respective blockchains. Examples include Bitcoin Cash and XRP.
Many retailers and service providers now accept crypto, making it easier to buy goods and services with them. Some examples include Overstock and Newegg, some Etsy sellers, and services like Bitrefill. In the travel sector, sites like Expedia and CheapAir now let you book flights and hotels with Bitcoin. The health industry is getting involved, too, with more clinics and wellness retreats now accepting crypto as payment. And the art scene is embracing it, with more galleries now offering artwork and other collectibles in crypto.
Cryptocurrency is still very new, and it’s difficult to predict its long-term value. It’s also not regulated the way other investments, such as stocks and bonds, are, which can make it more volatile. And it’s easy to lose money if you don’t do your research before jumping on the latest crypto bandwagon. Investors should always diversify their portfolio, consider how much volatility they can stomach (and avoid putting all their investable assets into one coin), and remember that crypto transactions are typically irreversible. For these reasons, many financial advisors recommend limiting your exposure to crypto.