Cryptocurrency is digital money that doesn’t rely on banks or financial institutions to verify transactions. It is backed by encryption and uses a public ledger called a blockchain to record transactions. It can be used to make online purchases or as an investment. Its value can fluctuate based on demand, supply, and speculation by investors. It’s not insured by the federal government like traditional currency or stocks, and it can be hacked and lose value. It’s important to understand these risks before investing in cryptocurrency.
Some people invest in crypto because they believe it can be more valuable than other assets, such as real estate or stocks. Others use it to pay for goods and services, as it offers a secure alternative to traditional bank card payments. Still others are interested in the technology behind it, which can provide decentralized processing and recording. Some cryptos even allow you to earn passive income through a process called “staking,” wherein you earn crypto for helping verify transactions on the blockchain.
The most popular cryptocurrency is Bitcoin, which was created in 2009. Since then, other cryptocurrencies have been developed, many of which are designed to be more secure or offer different features than bitcoin. Most cryptocurrencies have prices that fluctuate, sometimes dramatically, as they are bought and sold on exchanges. Some of these fluctuations are driven by how well or poorly the crypto is performing in the marketplace, its potential for future growth, and how much it might be needed by other businesses or users.
When choosing a cryptocurrency to invest in, it’s important to research the company or project behind it. Look for a clear description of how the currency will work, as well as how it’s being used now. It’s also helpful to see how large a user base a crypto has, as this can be a sign of its success and popularity. It’s also worth considering whether the crypto is a stablecoin, which is designed to avoid wild price swings by pegging its value to another existing currency.
For everyday spending, it’s best to buy a crypto debit card that lets you make direct, personal transactions without the need for an exchange. These cards can be used at shops that accept crypto, as well as online to pay for services and subscriptions. It’s important to keep in mind that any time you sell or trade your crypto for a profit, you may need to report it as taxable income. This is true even if you never spent the crypto or exchanged it for a good or service. Until the tax code around crypto changes, this could be a significant consideration for some investors.