Cryptocurrency is a type of digital money that uses advanced encryption to verify transactions and maintain a public ledger called the blockchain. It can be used to make purchases online, or it can be invested in and traded on cryptocurrency exchanges for profit. A growing number of businesses are also accepting cryptocurrency as payment, and it is often used to buy digital goods and services. Many investors hold cryptocurrencies as long-term investments, hoping that their value will increase over time.
Although cryptocurrencies have gained popularity, only 16% of Americans say they have ever invested in, traded or used them to pay for goods and services, according to a Pew Research Center survey conducted in 2022. Despite this low adoption rate, the technology continues to generate intense interest, especially from those who view it as a possible means of avoiding the reach and control of central banks.
Advocates of cryptocurrencies claim that they provide advantages over traditional money, such as privacy, speed and cost efficiency, portability, divisibility, transparency, and resistance to inflation. They are also promoted as potential investment vehicles that can generate substantial profits over the long term.
In addition, cryptocurrencies don’t require the use of personal information to make purchases or invest in them, which may help protect against identity theft and other fraudulent activities. They are global in scope and don’t suffer from the same geographic limitations as traditional currencies, and they can be moved between countries easily without conversion.
However, cryptocurrencies are subject to many risks, including high volatility, regulatory uncertainty, and infrastructure vulnerabilities. They are also susceptible to hacking and fraud, and their value can plummet in an instant. For example, there are no government-backed insurance programs for funds held in cryptocurrency, unlike those available for bank accounts in the United States.
There are thousands of cryptocurrencies currently in existence, with more being developed. Each one has its own unique features and goals. Some are designed to be a store of value, while others are intended for use in specific software programs, such as games or finance products. The first cryptocurrency to gain widespread attention was Bitcoin, which is still the best-known. Other popular ones include Ethereum (ETH), which allows for the creation of extra tokens on its network, and Cardano (CARD).
Some consumers invest in cryptocurrencies in the hope that their value will rise over time. Other consumers buy them as a way to pay for goods and services. For instance, a consumer might use Bitcoin to buy a firecracker pork burrito at New Hampshire’s Taco Beyondo, one of the many restaurants that now accepts this form of payment.
In some cases, a business might choose to pay its employees in cryptocurrencies. But this can be problematic, because there is no consistent guidance on how to manage tax issues when wages are paid in this way. And a company can lose money quickly if it fails to follow good security practices and does not back up its private keys, which are required to access and transfer funds.