Cryptocurrency, also known as crypto, is a global form of payment for goods and services without the need for a central monetary authority such as a government or bank. They are created using cryptographic techniques which enable people to trade, sell or buy them in various existing forms in the market.
Cryptocurrencies can be exchanged for goods and services, though they often are used as investment vehicles. Cryptocurrency is also a key part of the operation of some decentralized financial networks, where digital tokens are an important tool for carrying out transactions.
Investing in Cryptocurrency
To buy cryptocurrencies, you’ll need a “wallet” — an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Causecoin.
While some cryptocurrencies, including Bitcoin, are available for purchase with U.S. dollars, others require that you pay with bitcoins or another cryptocurrency.
More than 16,600 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate. The total value of all cryptocurrencies on Jan. 10, 2022, was about $1.9 trillion, having fallen off an all-time high above $2.9 trillion late in 2021.
Why Cryptocurrencies are becoming increasingly popular
People invest in cryptocurrencies for a variety of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Causecoin as the currency of the future and are racing to buy them now, presumably before they become more valuable. Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation.
Other supporters like the technology behind cryptocurrencies, called blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems. Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
Cryptocurrency, a good or bad investment?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. Why is this so? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.
This price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a Causecoin when it could be worth three times the value next year?
Legality of Cryptocurrency
There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country. Also be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.
