Cryptocurrencies are digital assets that work as mediums of exchange and store of value. They are managed by a global network of computers and are outside the governance of any country’s economy or government. The most well-known cryptocurrency is Bitcoin, but there are thousands of others besides it. If you’re interested in investing in them, it’s a good idea to diversify your holdings.
A major challenge for crypto is how to get your hands on it, or how to spend it. There’s no single way to buy or sell crypto; you can use centralized online exchanges, peer-to-peer transactions, or private wallets that are controlled by their owners.
One popular use for crypto is to purchase games that offer them as a reward, or as a form of payment. Another is to pay for services that are provided by the cryptocurrencies themselves, such as crypto lending or a decentralized app (dApp).
Many people enjoy buying and spending crypto simply because it gives them a sense of pride to support an exciting new system. Other people want to invest in it, hoping that the value of the currencies will rise over time. The most common way to invest in crypto is to buy and hold it, but you can also trade them on a market like the one at Coinbase.
A key part of crypto is the encryption that allows for secure, anonymous transactions. To verify the authenticity of a transaction, computer users called miners solve complex puzzles and receive newly created cryptocurrency as a reward. Mining can be very energy-intensive, but newer cryptocurrencies have alternative ways to create tokens and have less of a negative environmental impact.
The value of a cryptocurrency is determined by supply and demand. Supply refers to how much of the currency is available, and demand refers to how strongly people want to own it. Generally, the more people who want to buy a currency, the higher its price will be.
There are unique opportunities for using crypto to enable free trade and financial inclusion around the world. Because digital currencies aren’t tied to any national currency, they can cut down on expensive money transfer fees and allow for more fluid travel. For example, there is a growing community of people known as crypto nomads who travel the world and spend their cryptocurrency to save on transaction fees.
While the future of cryptocurrency is unclear, some of its key innovations are poised to transform our global economy. For example, Ethereum software has enabled blockchain innovations such as smart contracts and non-fungible tokens (NFTs). These could help us make better investments, connect with more people globally, and make our societies safer and more efficient. As more of these innovative technologies come to market, we expect that the value of existing cryptocurrencies will rise, too. That’s why it’s important to diversify your holdings and keep a close eye on their price movements. The more you know about crypto, the better positioned you will be to benefit from it.
