By Adrian Muñoz
June 26, 2022
UPDATED 12:00 PM EST
[Photo Credit: Career Advice]
Cryptocurrency is essentially a digital asset that can go around without the control of a government or bank, but rather with cryptographic techniques that allow people to purchase, sell, or trade safely. Therefore, cryptocurrency has been gaining popularity since the beginning of the 21st century due to its easy access for people to utilize.
Most cryptocurrencies like Bitcoin are supported by blockchain, a technology that maintains a record of transactions and tracks the ownership of each person. Individual units of cryptocurrencies are acknowledged as tokens or coins—some are used as units of exchange for goods and services. In contrast, others can simply be stores of value or run computer networks that carry complex transactions.
Cryptocurrencies can be created through mining (used by Bitcoin). Mining is a process by which computers solve puzzles to verify the authenticity of network transactions. As owners of those computers successfully fulfill that task, they can receive cryptocurrency. But the most common way to get cryptocurrency is to buy it from an exchange or another person.
Some of the advantages of cryptocurrencies include quicker and cheaper money transfers and systems that don’t collapse at a point of failure. Some disadvantages include price volatility, high energy consumption from mining, and involvement in criminal activities. Experts predict that blockchain and technology-related within will disrupt several industries such as finance and law.
Cryptocurrency can be used to purchase regular products and services but can also be used as a type of investment similar to other assets like stocks. However, it is advised that purchasing crypto can be risky as one should do a good amount of research to comprehend how the system works.
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The term “blockchain” is often heard in cryptocurrencies, but what exactly does it mean? A blockchain is a ledger that records transactions in code where they’re recorded in blocks linked together on a chain of former cryptocurrency transactions. In layman’s terms, blockchain is a way for people to keep track of their transactions just as they would when checking their expenses while being on a budget.
As of now, investment experts have mixed views about investing in cryptocurrency. Some advisors believe crypto can be an effective tool to create profit without too much risk, while others don’t encourage people to invest in crypto because it’s highly unpredictable with extreme price swings.
Ashford, Kate. “What Is Cryptocurrency?” Forbes, Forbes Magazine, 5 May 2022, https://www.forbes.com/advisor/investing/cryptocurrency/what-is-cryptocurrency/.
About the authors: Kevin Voigt is a former investing writer for NerdWallet. He has covered financial issues for more than 20 years. “What Is Cryptocurrency? Here's What Investors Should Know.” NerdWallet, https://www.nerdwallet.com/article/investing/cryptocurrency.
Frankenfield, Jake. “What Is Cryptocurrency?” Investopedia, Investopedia, 15 Apr. 2022, https://www.investopedia.com/terms/c/cryptocurrency.asp.