In just over a decade, cryptocurrencies have gone from digital novelties to trillion-dollar technologies. They’re used for everything from speculating to buying drugs to running new social media platforms. And the technology behind them, called blockchains, is getting billions of dollars in investment and attracting thousands of developers.
So what’s all the fuss about? And is crypto even worth investing in?
The most basic question about crypto is whether it’s safe and secure. Most experts agree that cryptocurrencies are safe as long as you don’t use them to buy illegal goods or services. And the blockchain technology that powers them has some powerful security features.
It’s essentially an online database, but instead of just storing data like spreadsheets, it records transactions in a way that’s hard to hack or corrupt. Each time you type information into a cryptocurrency blockchain, it creates a chain of encoded documents that’s stored on many computers and linked together. If someone alters a single document, the entire chain becomes invalid. To check the authenticity of a document, programs on the network compare it with other documents in the chain and accept only valid ones.
These chains are also transparent, so anyone can see all the transactions that have ever occurred on a given cryptocurrency. This is what gives them power as a security measure: If someone tries to alter or erase transaction history, it would be instantly obvious because the whole chain would change.
Blockchain is a big reason why so many people are now interested in cryptocurrencies, from Lamborghini-driving Dogecoin millionaires to artists who want to bypass platform gatekeepers like YouTube and Spotify to sell their own digital creations directly to fans. It could also revolutionize banking by reducing the amount of time it takes to process a deposit or withdrawal, as well as cutting costs.
There are other reasons why investors might be drawn to cryptocurrencies, too. They can be bought and sold quickly, at a much lower cost than traditional investments. They can be held anonymously, which is attractive to people who want to avoid government scrutiny or avoid putting their names on financial accounts. And they can move around the world in a matter of seconds, as opposed to the days or weeks it can take for money and shares to clear between banks in our existing financial system.
But despite these benefits, it’s important to remember that most of the value of most cryptocurrencies comes from speculation, not their use as a means of payment. So if you’re thinking about investing in them, be sure to diversify your portfolio and research the companies thoroughly, just as you would with any other investment. And be prepared for dramatic swings in price. If you’re not comfortable with that, perhaps it’s best to stay away.
