Cryptocurrency is a digital asset that allows people to send money anywhere in the world almost instantly and for very low fees. Its value is derived from supply and demand, just like any other good or service. But cryptocurrencies also have unique properties that make them attractive to investors. Some, like bitcoin, are purely investment vehicles, while others have real-world utility, such as the ability to purchase goods and services. And some cryptocurrencies, such as stablecoins, aim to peg their price to other assets or traditional currencies.
As a result of these differences, cryptocurrencies are subject to different risks than other investments. Some of these risks include price volatility, the lack of regulation, technical hurdles, and potential misuse. It’s important to fully understand how a cryptocurrency works before investing. Investing in a cryptocurrency without understanding how it works can lead to financial loss.
Unlike other online payments, cryptocurrency transactions are not backed by the same consumer protections as credit cards. This can leave consumers vulnerable to scams and expose them to potentially large losses if they lose access to their private keys or the platforms they use to buy, sell, store and exchange their crypto. And unlike money in a bank account, crypto holdings are not insured by the federal deposit insurance corporation (FDIC) or the Securities Investor Protection Corporation (SIPC).
To help prevent fraud and other issues, cryptocurrency is often secured by a technology called blockchain. Crypto transactions are recorded on a public ledger known as a blockchain, which is essentially a giant spreadsheet that records all transactions and provides a record of everyone’s account balances. The blockchain is maintained by a network of computers running free, open-source software that is designed to verify and record transactions in a way that can’t be tampered with. Each node in the crypto network, or cryptocurrency exchange, is responsible for checking and recording transactions on the blockchain.
While some governments regulate crypto exchanges and merchants, most do not. So, when trading, it’s important to research and choose reputable exchanges and merchants. It’s also a good idea to only spend what you can afford to lose, and to check for security updates frequently.
There are many ways to use cryptocurrency. Some of the most popular include: