Cryptocurrencies are gaining popularity as investments and payment methods. But there’s a lot to learn about the different types and how they work before you make a decision to invest in one.
The first cryptocurrency to take off was Bitcoin, created in 2009. Bitcoin (with a lowercase “b”) and other cryptocurrencies operate on a technology called blockchain. This is a database that stores and constantly verifies every transaction that ever takes place on the currency’s network. The beauty of blockchain is that no central authority controls it. This makes it very difficult to tamper with.
It allows for quick, global transfers of value. This means that you can send money to someone in another country at nearly anytime, for very low fees, without having to worry about traditional business hours, currency conversions or international wires. This is particularly useful for people in places where banks and other financial institutions aren’t readily available.
Unlike a bank account, crypto holdings aren’t insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation. So if you buy and sell on platforms that aren’t well-regulated, get hacked or stop operating, you could lose your entire investment.
Some cryptocurrencies are backed by hard assets or cash flow. Others have no underlying asset and rely solely on market demand and pricing to produce returns. This makes them more risky than an investment in a publicly traded company that produces a steady income.
While many cryptocurrencies have skyrocketed in value over the past few years, their price can also be volatile. That’s why it’s important to consider how much you’re willing to invest and only invest what you can afford to lose.
Cryptocurrencies aren’t regulated by any government or central authority, so they’re not protected against inflation or other economic forces. That’s why it’s important that you research any cryptocurrency you’re thinking about investing in to ensure that it’s legitimate.
Investing in any type of asset comes with risks. But it’s particularly important to do your homework when considering a new investment like a cryptocurrency, as it can be easy to fall prey to scams and fraud.
The most popular cryptocurrencies include Bitcoin, Ethereum and Bitcoin Cash. But there are many more that operate on different technologies and have unique features. It’s worth exploring them all to see if any might fit your investment strategy.
To use a cryptocurrency, you need a digital wallet that stores your private keys. This is typically an app on your smartphone or computer that’s encrypted with your password. Whenever you want to spend your crypto, you’ll need to enter your wallet address and your private key. If you’re using a mobile wallet, keep in mind that most phones are vulnerable to hackers and should be kept secure. It’s also wise to back up your wallet on a physical piece of paper and store it somewhere safe, where it won’t be destroyed or lost. Each crypto wallet has its own set of seed words, which is a sequence of letters and numbers that represents your private key.