Cryptocurrency is digital money that’s stored on a decentralized network. Unlike traditional currencies, it’s not issued by a government or bank, and it’s designed to surpass the functionality of fiat currency in that it can facilitate global peer-to-peer payments at very low cost. This is the primary use case of most cryptocurrencies, though they can also be used as investment assets.
Some people buy cryptocurrencies as investments, betting that they’ll rise in value over time. This is a risky strategy, and it’s not unusual to lose your entire investment if the price of a crypto falls significantly. To protect yourself from this, always research a cryptocurrency before investing in it. Look for a website that clearly explains how it will work, and check whether other investors are taking an interest. If they are, this may be a good sign that the currency is gaining traction and has potential for growth.
Many people also purchase cryptocurrencies to spend directly, at shops that accept them. For this, you need to have cryptos in your wallet, which can be done by buying them on an exchange with regular money or earning them through mining. Once you have them, you can choose to use them as a payment method at checkout, providing your wallet address or scanning a QR code. You can also use a crypto debit card, which acts like a normal card but uses your crypto balance.
Either way, you’ll likely need to convert your cryptos back into cash at some point. There are various ways to do this, from centralized exchanges to peer-to-peer transactions. For most people, however, using a crypto wallet that’s linked to a bank account is the easiest and most secure option.
The key advantages of cryptos include their speed, ease of use and global reach. They allow for fast, low-cost international payments that bypass bank-to-bank transfer fees and can’t be manipulated by central banks or financial institutions. They can also be sent to anyone with internet access, which can be especially helpful for refugees and other people living in developing countries without bank accounts.
Another advantage of crypto is its privacy. Depending on the type of cryptocurrency, it can offer varying levels of anonymity or pseudonymity. This can be useful for people who want to keep their identities private, or to avoid taxes in some jurisdictions.
Cryptocurrencies are considered high-risk investments and should only make up a small portion of your overall portfolio. A common guideline is that they should not be more than 10% of your total assets. It’s also wise to diversify your crypto holdings, as different currencies can rise and fall at different rates and over different periods. A diversified portfolio can help reduce your exposure to risk and limit any losses you might experience in one particular cryptocurrency.