Cryptocurrency is a new form of money that uses encryption to operate without central banks or government oversight. It’s grown from a tech enthusiast fascination to an asset class with real utility, particularly in finance. It’s also been a volatile investment, with prices rising and falling sharply. That volatility makes cryptocurrency a good choice for some investors and not others.
Cryptocurrencies can be used in many different ways, from a pure investment to spending money at a growing list of online and brick-and-mortar retailers that accept them. Some of these retailers are well-known brands; others may be lesser-known, but they all have one thing in common: they use cryptocurrencies to process their payments. That’s why some people invest in them — they believe that as demand for the currencies rises, so will their value. It’s a similar concept to investing in stocks, where the valuation of a company boils down to discounted estimates of future cash flows.
But cryptocurrency is different from traditional investments, because there is no underlying company; instead, it’s based on the faith that demand will drive its price. That’s why you need to do your research before investing in it. Crypto prices can rise and fall in response to changes in supply and demand, as well as investor sentiment. If you’re not prepared to weather those swings, you’re better off staying away from it.
Another important thing to keep in mind is that cryptocurrency transactions are irreversible — once you send some crypto to someone else, it’s gone forever. That means that if you invest in something and then later change your mind, you’ll need to sell it at a loss. And if you buy some cryptocurrency thinking you can make a profit by selling it later, that’s also risky, as the prices of some cryptocurrencies have crashed in recent years.
The good news is that you can learn a lot about a particular cryptocurrency by studying its market share and the way it’s being used. Many reputable cryptocurrency projects publish metrics about their usage, as well as a “white paper” that explains how they plan to use their tokens. It’s also a good idea to check whether any major investors are involved in the project.
Finally, it’s worth remembering that a big part of cryptocurrency’s appeal is its independence from governments and financial institutions. That doesn’t mean that it’s free from fraud and other risks, but it does offer the opportunity to expand people’s economic freedom around the world. That’s why some people support it, even though they might worry that it could eventually be a passing fad.
