Cryptocurrency is decentralized digital money that’s based on blockchain technology. Its individual units are called coins or tokens. Some are intended to be used as money, while others store value or act as a medium of exchange for goods and services. Still others are a part of software programs or can be traded in games and financial products.
The most famous cryptocurrency is Bitcoin, which was launched in 2009 by Satoshi Nakamoto (a pseudonymous person or group of people). It allows users to send money peer-to-peer without the need for intermediaries such as banks.
Unlike traditional currencies, which are issued by central banks and backed by governments or other entities, cryptocurrencies are created by computer programs, making them decentralized. This means they’re not tied to any government, bank, or other entity and can be transferred globally instantly and securely.
They’re also resistant to inflation and can be transferred between accounts instantly and cheaply, often at a fraction of the cost of sending money using traditional methods. For these reasons, they’ve gained popularity as a way to invest and store wealth.
Many of the world’s largest cryptocurrencies are traded on major exchanges, which function like stock markets. The exchanges set the price of the coins and manage the buying and selling of them.
There are also some companies that specialize in storing cryptocurrency for customers. These so-called “custodial” services offer storage of the coins, a safe place to keep them, and tools for transferring them between accounts. The fees for these services can be expensive, but some consumers find them worth the extra expense for the convenience and security they provide.
When you buy or sell cryptocurrency, the transaction is recorded on a public ledger called the blockchain. The blockchain is a database that’s distributed across thousands of computers around the world. It stores a record of transactions, or blocks, in the form of data records that are linked together to create a unified transaction history. The blockchain is constantly checked and verified by computers running special software, so that the information stored on the ledger remains accurate.
A growing number of online retailers and some brick-and-mortar stores now accept cryptocurrency as payment. The process is similar to paying with a credit or debit card, and you can often use a mobile app.
There are some risks involved with cryptocurrencies, though. For example, they’re not insured like money in a bank account and could lose value. Additionally, many exchanges that buy and sell cryptocurrencies are not regulated, and they may be hacked or shut down. Finally, crypto holdings are not reversible, so you should only purchase them with an amount that you’re willing to lose.
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