Cryptocurrencies are digital currencies built on decentralized networks that enable peer-to-peer transactions. They use advanced coding to verify transactions and are popular with speculators who can drive prices skyward. As more people invest in cryptocurrencies, questions arise about whether they can serve as a store of value or a means of exchange.
Crypto investors must be prepared for a high degree of volatility, and it is important to research any cryptocurrency investment thoroughly before making a decision. This can be challenging, as unlike traditional stocks that are linked to publicly traded companies, cryptocurrencies are not subject to standard financial reporting requirements. For this reason, many investors choose to work with a trusted financial advisor who is familiar with the space and can help educate them about the unique risks of this investment class.
Most cryptocurrencies are designed to be used as units of exchange for goods and services, a stores of value or to participate in specific software programs. As such, they have a number of features that differentiate them from more traditional financial products, including portability, divisibility and inflation resistance.
Some cryptocurrencies are also designed to be more stable than others, with the goal of mitigating price volatility. Stable coins like Tether are tied to a reserve asset, such as the US dollar or gold, to create a ‘peg’ that helps them retain their value. In practice, the extent to which these pegs hold true varies.
Security is another key feature of most cryptocurrencies. They are secured using a technology called a blockchain, which is a public ledger of transaction information that is constantly checked and verified by a large network of computers.
The process of sending and receiving a crypto payment involves two components: the sender and the receiver. The sender provides their private wallet address, which contains the crypto they wish to send, to the recipient. The recipient then verifies the correctness of this address using a public key. Once verified, the recipient can spend the crypto received from the sender.
A variety of online services allow individuals to buy and sell cryptocurrencies. Some of these sites offer an easy-to-use interface while others require a more technical knowledge of the underlying blockchain technology. Regardless of the platform, these services will often charge a fee to process a transaction, which can vary widely depending on the volume and liquidity of the crypto being sold.
While some cryptocurrencies have been designed to be purely investment vehicles, most are also useful as a form of currency. They can be purchased at a number of global merchants, and can be converted to other currencies quickly and securely.
Purchasing goods and services with crypto can be a great way to cut down on international transfer fees, and there is a growing community of ‘crypto nomads’ who travel the world while exclusively spending their cryptocurrency.
Many people also enjoy ‘tipping’ authors, artists and other creators who publish content online. This is possible by leaving their Bitcoin address or QR code at the end of their work, and can be a quick, easy and inexpensive way to show appreciation for their efforts.