Cryptocurrency is a digital representation of value that utilizes blockchain technology. Unlike fiat currency (such as dollars or euros) that derive their value from government or company backing, most cryptocurrencies are decentralized and operate peer-to-peer without any central authority. As such, they can function as a medium of exchange, a unit of account, and a store of value.
Bitcoin is the best known cryptocurrency, but there are thousands of others out there, and new ones continue to emerge. Despite the hype, cryptocurrencies still lack key features of traditional money, such as widespread acceptance and permanence of value. While they can be used to buy products and services from some merchants, many people hold them as investments, hoping their prices will rise.
There are several risks associated with cryptocurrencies. Most are volatile, meaning their prices can quickly go up and down. Some are also prone to fraud, and investors may lose their money due to theft or hacking. In addition, many cryptocurrencies are created through a process that uses a lot of energy, which can be environmentally harmful.
Finally, cryptocurrencies are not federally regulated like other financial assets and are not insured by the FDIC or SIPC. This can make them vulnerable to regulatory crackdowns and sudden market volatility. Investors should always thoroughly research any cryptocurrency investment before making a decision. They should also be aware that they will likely be taxed as property, rather than currency, in the United States.
