Cryptocurrency is a form of digital money that uses encryption to verify and record transactions. It is not backed by any government or central bank and is instead decentralized, meaning there is no single authority that regulates or controls it. This lack of centralized control has led some to consider it less vulnerable to inflation than traditional currencies and assets. Others see it as a potential disruptor to the financial system, inspiring passions on both sides of the argument.
Like any asset, cryptocurrencies’ value stems from supply and demand. The former refers to the number of coins available to purchase at any given time, while the latter refers to how much people want to own them. When there is a high level of desire for a cryptocurrency, it tends to perform better than one with low demand.
There are thousands of different cryptocurrencies, and choosing the right one for you depends on your goals. Some are designed to be investment vehicles, while others may serve a specific purpose (like playing a game or buying goods and services). To choose the right cryptocurrency for you, start by asking yourself what you hope to get out of it. Then, look at how widely it’s being used — this can be a good indicator of its popularity. In addition, reputable projects will make public their monetary policies and business plans, and they may also have a white paper that explains how the project will work.
Purchasing cryptocurrency usually involves using traditional money to fund an exchange, platform or app that sells it. Many of these platforms charge trading fees, and the total amount you pay can add up quickly. However, there are alternatives that can provide lower costs, including decentralized exchanges that don’t charge any fees at all and do not hold investor funds. They are generally harder to use and require a bit more technical knowledge, but they can offer added security by preventing third parties from accessing your private keys.
Sending and receiving cryptocurrency is fairly easy and straightforward, though the exact process varies by platform and app. Once upon a time, this was a complex process that involved diving into the command line on your computer, but newer apps make it as simple as using any other messaging or payment service.
Some online retailers, from luxury sellers of Rolex watches to car dealers offering premium brands, accept cryptocurrency as a form of payment. And there are a growing number of brick-and-mortar stores that do the same. Some insurers are even accepting Bitcoin payments for insurance policies.
The legal status of cryptocurrencies is still uncertain, with some countries considering them securities and others viewing them as currencies. As such, they are subject to sudden regulatory changes that could make it difficult to sell or use them. In the US, for example, gains on the sale or exchange of cryptocurrencies are taxable. This can add up quickly if you invest in cryptos that rise in value.