When rapper Cardi B tweeted that she was “investing in crypto,” she wasn’t just promoting a new fad, or expressing a curiosity that seems to be sweeping the culture. She was pointing out that cryptocurrency, or “crypto,” can be traded for real money at an ever-increasing number of online and brick-and-mortar stores. This raises some important questions. Is crypto legit, and why are millions of people buying it?
Crypto is a digital asset that can be used to store value, make payments and verify ownership. It’s typically built on blockchain technology, which is designed to be decentralized and hard for governments to control. It records transactions in a “block” that contains a timestamp, the transaction data and a “hash,” or a math function made of letters and numbers that represents the information contained in that block. Once recorded, the data in a blockchain is immutable — meaning it can’t be changed.
Blockchains are also transparent, which means that anyone can see all transactions as they happen, and that everyone’s copies of the blockchain match each other. This is one of the core functions of a cryptocurrency, and it helps prevent fraud by making it very difficult to manipulate or alter a record without other people being able to easily spot the change. Crypto is also secure, as the blockchain is designed to be resistant to hacking and other cybersecurity attacks. To protect against these risks, cryptocurrencies typically use one or more validation techniques, such as proof of work and proof of stake, to check that a transaction is valid before adding it to the blockchain.
As a result of these features, and other attributes like divisibility and censorship-resistance, some people believe that cryptocurrencies will become a replacement for traditional currencies. However, it’s important to remember that the price of a cryptocurrency can fluctuate, and there is no guarantee that any particular coin or token will increase in value.
Another thing to keep in mind is that a cryptocurrency investment isn’t a sound retirement plan, or a way to grow your savings. Like any other investment, you can lose everything you put into it. And, unlike money in a bank account, cryptocurrency holdings aren’t insured. Platforms where you buy and sell crypto can be hacked, or they might shut down. And even when they don’t, new legislation might upend the price of a cryptocurrency.
That said, if you’re willing to do your research, and to limit the amount of money that you invest in it, crypto can be an interesting place to put some of your savings. The technology is changing quickly, and it may take time to understand it fully before you decide whether to invest in it. But if you’re interested, it can be an exciting part of the new economy. Just be sure to only invest what you can afford to lose. And don’t forget to talk to your financial advisor about it. He or she will be able to help you figure out if it’s the right fit for you.