Cryptocurrencies are digital assets that use blockchain technology to enable peer-to-peer transactions. Bitcoin was the first cryptocurrency and still the best known, but there are thousands of others. Like other investments, they can be volatile and some have lost value over time. Cryptocurrency’s appeal stems from its decentralized nature and potential to bypass middlemen, such as banks.
The cryptocurrency market is highly speculative, and investing in it involves risks including loss of principal. Investors should consider their investment objectives, risk tolerance and other factors before choosing to invest. To help investors find a suitable investment vehicle, NerdWallet’s ratings team conducts thorough research and analysis on online brokers and robo-advisers that offer crypto investing options. Our ratings are based on more than 15 data points, including account fees and minimums, investment choices, customer support and mobile app capabilities.
Bitcoin and other cryptocurrencies have many uses, from purchasing goods and services to storing wealth. Some companies, such as Overstock and Microsoft, allow customers to pay with cryptocurrency at checkout. Others, such as Coinbase Commerce, enable merchants to accept crypto payments. In addition, cryptocurrencies can be sent between people at low cost across borders, which eliminates the need for currency conversions and often saves money on transfer fees.
Unlike money in a bank account, cryptocurrency holdings are not insured by the Federal Deposit Insurance Corporation or the Securities Investor Protection Corp. They are also vulnerable to hackers and may lose value over time due to changing market conditions. Moreover, many platforms that buy and sell cryptocurrency are unregulated, meaning consumers may not have legal rights in case of a dispute.
The Ethereum network, for example, enables entire financial ecosystems to operate without a central authority. This means that users can buy and sell virtual property, such as video game items or real estate in a virtual world, without having to go through a traditional broker or title company. It’s possible that these and other applications could one day replace the need for the banking industry altogether.
Scammers may impersonate new or established businesses and offer fraudulent crypto coins or tokens. They might make social media posts, news articles or slick websites to lure people into investing in their scheme. Often these scams end up stealing money from the people who bought into them.
Stablecoins are a type of cryptocurrency designed to reduce volatility by pegging their value to existing currencies, such as the dollar. The stability of stablecoins depends on the number of people who hold them, so having a large user base can make a big difference in their price. In addition, stablecoins may be backed by physical assets, such as gold, and have strict spending limits. These characteristics can make them appealing to investors who want the potential of a rising price but are concerned about volatility. For these reasons, we recommend that you diversify your cryptocurrency holdings to include a number of different currencies.
