Cryptocurrency is a digital or virtual currency underpinned by cryptographic systems that enable secure online payments without the need for intermediary banks or government-backed entities. Transactions are recorded in a public ledger known as blockchain, and the technology uses various encryption techniques to safeguard these entries.
Bitcoin was the first cryptocurrency to gain significant traction, and since then developers around the world have come up with new ways to use distributed ledgers in an effort to streamline existing financial architecture. This has led to developments such as smart contracts, non-fungible tokens (NFTs) and decentralized finance.
Like any investment, cryptocurrency poses risks. In addition to the eye-popping short-term returns some coins have seen, cryptocurrencies are subject to wild price volatility, and their future regulatory environment is uncertain. It’s important to understand the risks before investing, and a good place to start is by reading up on a particular coin’s background and future outlook, says Owens. He suggests looking for information such as the coin’s total market capitalization, circulating supply, price history and more. Investors should also check how reputable an exchange is and what protections they offer.
Another factor to consider is the energy consumption associated with mining. Mining is the process of adding new Bitcoins to the blockchain, and it requires a lot of computing power. The annual electricity consumption for the Bitcoin system is estimated to be roughly equal to the entire country of Thailand.
Lastly, cryptocurrency users need to be aware that there are fewer consumer protections in place compared to traditional credit cards or bank accounts. For example, if you lose or steal your bitcoins, there is no one to call and request a refund. This is why it’s so important to invest only what you can afford to lose, and always keep your crypto in a secure wallet.
For now, it’s still too early to know whether cryptocurrency will become a mainstream payment method. However, it is an exciting and innovative development that can make global transactions faster and cheaper while reducing the need for intermediary institutions. This may have a positive impact on the global economy in ways we haven’t even imagined yet.