Cryptocurrency is a digital asset that supports transactions and stores value. It’s often used as an investment, but it can also be a tool for everyday shopping and other activities. However, because of its price volatility and lack of regulatory protections, it’s important to be aware of the risks before investing in cryptocurrency.
The most popular cryptocurrency is Bitcoin, which was created in 2009 to electronically mimic features of cash transactions without the need for a trusted third party. This makes it both secure and anonymous, although transaction records are kept in vast databases. The technology behind cryptocurrencies is called blockchain, and its security features include encryption and time stamping. Each block of data added to the blockchain is linked to the previous one, creating a chain that’s nearly impossible to alter. The timestamp and hash of each block are also shared widely, allowing everyone on the network to verify the integrity of the blockchain.
Some of the biggest criticisms of cryptocurrency involve illegal uses and its high cost. In contrast, others praise the technology for its portability, divisibility, and inflation resistance.
Most cryptocurrencies are built on the Ethereum platform, but there are many other alternatives. Each coin has a specific purpose, and deciding which to invest in requires research. Investors should also take note of a coin’s fees, which can make a significant difference in returns over the long term. In addition, a wallet is essential to store and safeguard cryptocurrency. Hardware wallets are generally considered more secure than software wallets, but the choice is ultimately up to each individual investor.
If you decide to buy a cryptocurrency, select an exchange with low fees and a reputation for security. Most reputable exchanges will prominently display their fee structure and operating jurisdiction. You should also check whether a site offers two-factor identification (2FA) to protect your account from hackers.
Buying and selling cryptocurrencies involves trading, which can be highly volatile. The prices of most cryptocurrencies can drop in seconds on news or rumors that end up being baseless. As such, this market is geared primarily toward sophisticated investors with the ability to execute trades quickly and who have a good grasp of fundamentals and what could drive future gains.
Stablecoins are a type of cryptocurrency that seeks to provide stability in a market where other coins can be volatile. Some stablecoins maintain reserve assets, and others use algorithms to stabilize their value. However, stablecoins have still experienced price swings in the past. For this reason, investors should consider balancing any cryptocurrency holdings in their portfolio with more conservative investments. Alyssa Towns works in communications and change management, but she also freelances and writes articles for G2. She has a particular passion for SaaS and productivity content. In her spare time, she can be found trying new restaurants and adventuring outdoors with her Bengal cats Yeti and Yowie.