Cryptocurrency has gone from a fringe interest to trillion dollar valuations in just over a decade. But the mania for this new digital money has also given rise to bizarre stories like Dogecoin millionaires and Lamborghini-driving Bitcoin bros. While it’s tempting to write off cryptocurrency as a fad, understanding the basics can help you make sense of this huge shift in wealth and ideology.
Crypto is a form of digital money that uses cryptographic techniques to verify transactions and control the creation of monetary units. Bitcoin is the most widely known cryptocurrency, but there are thousands of different ones with market valuations in the hundreds of billions. Individual cryptocurrencies are often called coins or tokens and can be used as units of exchange for goods and services, stores of value or to participate in specific software programs.
The most important thing to understand about cryptocurrency is that its value is determined by supply and demand. Supply refers to how many cryptocurrencies are out there, and demand refers to how strongly people want to own them. This combination of factors determines price, which is why it’s so hard to predict when a cryptocurrency will peak or crash.
Another important difference between cryptocurrencies and traditional assets is that there is no central authority that oversees them. Instead, each cryptocurrency network runs its own blockchain (a record of all the transactions that have ever occurred) using a complicated algorithm. This decentralized system is designed to be impervious to attacks from hackers or governments.
While cryptocurrencies’ volatile prices capture most of the headlines, they’re part of a larger movement to reinvent how we live and work. By removing the need for trusted centralized intermediaries, cryptocurrencies could change how we invest, transfer wealth and conduct business.
For now, though, most of us don’t own cryptocurrency. If you want to get started, the best way to buy it is at a cryptocurrency exchange. These businesses allow you to buy or sell cryptocurrencies at the current market price, much like a stock. Once you have some crypto, you can store it in a digital wallet.
A few key aspects of cryptocurrencies that make them interesting to many users are:
Portability: Because cryptocurrency isn’t tied to a currency or financial institution, it can be used anywhere in the world without any fees. This is attracting a growing community of “crypto nomads” who spend their entire lives traveling and using only cryptocurrency.
Transparency: Every transaction on the blockchain is public and can’t be changed or deleted. This has enormous security benefits and reduces the likelihood of fraud. It also makes it impossible for a credit card company to reverse a purchase.
Other features:
Cryptocurrency isn’t for everyone. It can be cumbersome, slow and expensive to use, but there are also a few key features that set it apart from other assets. For example, there are no taxes or fees associated with a cryptocurrency transaction, and they can be made almost instantly.