Cryptocurrencies are a hot topic, with their volatile prices boosting or slashing portfolios. But despite the hype, crypto is still a fairly complicated investment. Here’s what you need to know to get started.
What Is Cryptocurrency?
Cryptos are digital assets that function like money but aren’t backed by central banks or companies. They use blockchain technology to record transactions and verify their authenticity. Cryptos are also generally not regulated the same way that stocks are. This means they’re not subject to the same scrutiny before being sold to investors, and there is no guarantee that a cryptocurrency will increase in value.
The most popular cryptocurrencies are bitcoin, ethereum, and litecoin. There are thousands of others, with new ones constantly coming to market. To help users distinguish between them, most exchanges display each coin’s price on their homepage and offer information about the currency’s history and valuation.
When it comes to making purchases, cryptocurrency transactions are usually faster than wire transfers. They’re also often cheaper, with many fees being lower or even free. And you can make them from anywhere, at any time of day or night, with no need to visit a bank or fill out documentation.
Another advantage of cryptocurrencies is that they’re generally decentralized, meaning that they’re not regulated or owned by any company or government. Instead, they operate according to computer software that is publicly accessible through the internet. This makes them resistant to manipulation and hacks.
In addition to serving as a store of value, some cryptocurrencies, such as bitcoin, can be used for peer-to-peer payments. To send a cryptocurrency to someone, you connect your wallet to theirs and then transfer the amount you want to send. The transaction is then recorded on the blockchain, which shows who currently owns the coin. Most wallet providers have mobile apps that make it easy to send and receive crypto.
A growing number of businesses and online retailers now accept cryptocurrencies as payment. Some even offer incentives to customers who pay with crypto, such as discounts or free goods.
Finally, some cryptocurrencies are designed to be stable, meaning that their value is pegged to other currencies or to gold. Stablecoins are designed to mitigate the volatility that other cryptocurrencies experience. To maintain their stability, most stablecoins keep a dollar’s worth of reserve cash on hand and are audited by third parties.
Remember that when you invest in cryptocurrencies, your holdings aren’t insured the same way that they are with traditional investments, such as stocks and mutual funds. That means that if the platform where you hold your crypto goes out of business or gets hacked, you could lose some or all of your investment. So, only invest in crypto with money that you’re willing to lose. And always invest through an exchange that is registered with FinCEN and operates in your jurisdiction. You should also consider using two-factor authentication (2FA) on your account, which requires a phone or other device to log in.
