A cryptocurrency is a digital medium of exchange that uses cryptography to verify transactions. Its underlying technology is called the blockchain, which acts as a distributed database that records all crypto activity in chronological order. The blockchain is designed to be impervious to fraud or hacking.
Cryptocurrencies are not backed by any central bank or monetary authority, and they operate outside most existing financial infrastructure. This makes them subject to volatile prices and a lack of regulation. Supporters say cryptocurrencies are an alternative to fiat currencies like the dollar, and they offer advantages such as transparency, divisibility, portability, and resistance to inflation. But critics point to their links to terrorist financing, speculation, and volatile price swings.
The first modern cryptocurrency was Bitcoin, created in 2008. The coin’s creator, Satoshi Nakamoto, published a white paper outlining its specifications and released it to the public in 2009. Bitcoin and other cryptocurrencies are now widely accepted as forms of payment online and in some physical stores.
When choosing a cryptocurrency to invest in, it’s important to do your research. Look at its market cap and trading volume, as well as the number of people using it. Check if the project has an active team with experience in the industry and a track record of success. Look for websites that provide clear and detailed information about the currency, including its value proposition and how it’s used.
Another thing to consider is whether a cryptocurrency has a specialized purpose. For example, XRP and Ethereum are both utility tokens that serve specific functions on their respective blockchains. A cryptocurrency’s underlying blockchain may also be a strong indicator of its long-term prospects.
Some cryptocurrencies are built to be faster and cheaper than others. The Litecoin blockchain, for instance, runs at a higher speed and has lower transaction fees than the Bitcoin blockchain.
Regardless of which cryptocurrency you choose, make sure to use an exchange that requires identification verification before opening an account. The know-your-customer (KYC) process will require you to provide your name, address, and social security number or passport. This helps prevent money laundering and other crimes.
Once you’ve purchased some cryptocurrency, store it securely in a digital wallet. There are several types of wallets, from centralized exchanges to decentralized ones that cut out the middlemen and allow you to trade directly with other users. If you’re more advanced, you can also create a private key for your wallet so that only you can access it.