Cryptocurrency~ virtual money

https://time.com/nextadvisor/investing/cryptocurrency/what-is-cryptocurrency/
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WHAT IS CRYPTOCURRENCY?
Cryptocurrency is going mainstream — and
becoming increasingly difficult for investors to
ignore.  
Coinbase made headlines recently as the first
crypto exchange to go public on the Nasdaq,
and established firms like Fidelity are adding
crypto to their investment offerings. The
adoption of online payments using crypto is
growing too, thanks to brands ranging
from legacy publisher (and NextAdvisor
partner) TIME to digital payment facilitator
PayPal and international auction house
Sotheby’s. 
You may be wondering what to make of
cryptocurrency and whether it has a place in
your portfolio. But if you’re not familiar with
digital currencies or blockchain technology,
even the basic concept can be overwhelming. 
Here’s our guide to crypto, and why so many
people are talking about it these days.
What Is Cryptocurrency?

Cryptocurrency is a type of currency that’s

digital and decentralized. Cryptocurrencies can
be used to buy and sell things, and their
potential to store and grow value has also
caught the eye of many investors.
There are thousands of different
cryptocurrencies available today. The most
popular — and the original — is Bitcoin, which
was created in 2009. Other common
cryptocurrencies include Ethereum, XRP, and
Bitcoin Cash. Each of these currencies serves a
different purpose, with some optimized for use
in place of cash, and others designed for private,
direct transactions.
Cryptocurrencies are wholly digital, so there’s
no physical coin or bill connected to the crypto
you own. Instead, owners hold cryptocurrency
in a digital wallet, and buy or sell through an
online exchange. Your wallet may be online
(some popular exchanges like Coinbase offer an
in-app wallet) or stored offline on a hardware
device similar to a USB drive.
Decentralization is a primary tenet of
cryptocurrency. Whereas most currencies are
backed by a central bank — the U.S. dollar, for
example, is backed by the “full faith and credit”
of the U.S. government — cryptocurrencies are
maintained and valued by their users.
Cryptocurrency transactions are recorded on a
decentralized ledger. This ledger is called a
blockchain. Every time crypto is bought or sold,
the transaction is added to the blockchain — a
public database of the transactions, which is
available to other crypto holders. Anyone can
join and participate in the blockchain, but data
on individual transactions — and the people
involved with them — are secured using
cryptography (the basis for the term
cryptocurrency). For each transaction added to
the blockchain, there’s a digital validation
process to verify it and prevent fraud.
What Can You Do With Cryptocurrency?

While it shares characteristics of both currency

and investments, there’s still debate among
experts about whether cryptocurrency is clearly
one or the other. 
As its name suggests, you can use
cryptocurrency to make purchases. But your
purchasing power is limited; crypto isn’t yet
widely accepted among retailers and other
businesses. 
That lack of widespread adoption, plus crypto’s
volatility, limits its use as a currency, says
Roger Aliaga-Díaz, principal and senior
economist with Vanguard Investment Strategy
Group.
For many people, crypto is a type of alternative
investment. Just as you can buy and trade stock
in public companies, you can buy
cryptocurrency with the hope that it will
increase in value over time, allowing you to
cash out for a profit at a later date. Some people
invest in crypto less for the belief that it will
become a popular currency and more as a bet on
the blockchain technology behind it. 
But classifying crypto as an investment is
complicated, too. It doesn’t quite fit the mold of
a traditional stock or bond, and while
cryptocurrencies do share characteristics of
commodities like gold — they can be bought
and sold for cash and as derivatives based on
expected future value — they have no inherent
physical value or use. 
Without a clear track record to assess long-term
value, cryptocurrency rises and falls on an
unpredictable demand cycle. And for individual
investors, the challenge is “you really don’t
know where supply and demand can end up,”
Aliaga-Díaz says.
Similar to forex — foreign exchange — trading,
there can be significant risks involved with a
largely unregulated market, and your best bet is
to get informed beforehand, and don’t invest
any money you can’t afford to lose. Regulators
are still trying to figure out how to classify
cryptocurrencies, for purposes of trading,
payments, antifraud, taxation, and more. Clear
regulation may help us understand how to use
cryptocurrency and what its future may look
like, but we aren’t there yet. 
“Where digital assets land, at the end of the day
… will be driven in part by regulation, both
domestic and international,” Former SEC
Chairman Jay Clayton recently told CNBC.
What Are the Cryptocurrency Terms You
Should Know?
Blockchain: A blockchain is a type of database
in which a cryptocurrency’s digital transaction
records are stored in groups, or blocks. New
blocks are continually created as extensions of
the previous block, forming a chain. These
blockchains build upon themselves within the
database, storing an ever-increasing amount of
data about the transactions for a specific
cryptocurrency.
Decentralized: In the context of
cryptocurrency, the term decentralized means
the currency isn’t backed by a central bank or
other financial institution.
Distributed ledger technology (DLT): A
decentralized digital record. Unlike typical
databases, there’s no central authority; the
record is stored across multiple locations
simultaneously and once a transaction is
recorded it’s permanent. Blockchain is a type of
DLT, but the technology can serve a number of
purposes beyond cryptocurrency trade. 
Bitcoin: The first cryptocurrency, and still the
most popular today.
Altcoins: Any cryptocurrency that is
not Bitcoin. Some popular altcoins today
include Ethereum, Dogecoin, and Litcoin. These
altcoins each have different features and
purposes.
Exchange: A marketplace where you can buy
and sell cryptocurrency.
Wallet: A place to store your crypto currency
holdings. Many exchanges offer digital wallets. 
Is Crypto Safe?
The blockchain technology backing
cryptocurrency is inherently secure, thanks to
the decentralized — and public — nature of
distributed ledger technology and the encryption
process every transaction undergoes.
But that doesn’t mean it’s completely secure in
the same way most people consider the U.S.
dollar or other established currencies to be
secure. Since cryptocurrency isn’t backed by
any governmental authority, it doesn’t have the
same protections as many standard currencies
throughout the world.
Unlike the money you save in a bank insured by
the Federal Deposit Insurance Corporation
(FDIC), “If a virtual currency company fails –
and many have – the government will not cover
the loss,” the Consumer Financial Protection
Bureau warned in a 2014 notice about
cryptocurrency (its most recent guidance).
The CFPB names more specific risks that
consumers should be prepared for, including
volatile exchange rates, potential high fees on
exchange platforms, and fraud risk. If your
funds are lost or stolen, they can be especially
difficult to recover, thanks to the decentralized
nature of blockchain and lack of any
governmental oversight. 
And, importantly, just because cryptocurrency
is secure does not make it safe. As much as
some of the recent popularity of cryptocurrency
is driven by investors’ belief in its value, that
value is still based on speculation. For those
who invest in crypto, it will be among the
riskiest investments they make.
“I believe everyone should have a diversified
portfolio,” says Daniel Johnson, a financial
advisor and founder of RE|Focus Financial
Planning in Asheville, North Carolina. Any
investment you make should be appropriately
weighted against the rest of your portfolio as
well as the overall  market. Just as you wouldn’t
invest all your money in one company, it’s
unwise to put every dollar you have into crypto.
What Does the Future Hold for
Cryptocurrency?
Bitcoin and some other cryptocurrencies’ values
have skyrocketed in recent years. Bitcoin’s
price has more than doubled in 2021, and
Ethereum has more than quadrupled in
value this year.
But whether that growth is sustainable, and
what it means long-term, is still in question.
“This crypto, blockchain technology, the public
interest in it right now is being driven by a kind
of speculative fever,” says Dr. Richard Smith,
executive director of the Foundation for the
Study of Cycles, a nonprofit organization
dedicated to studying recurring patterns
throughout economies and cultures. 
Still, an increasing number of big, powerful
players are validating crypto’s potential. 
“Every single day, the concept that it could be
worth something, it could be a store of value is
being continually approved by more large,
powerful entities,” Johnson says, pointing
to established financial institutions holding
digital currencies and large corporations adding
them to their corporate balance sheets. “The
idea that it’s actually worth something is
continuing to grow as adoption and acceptance
continues to grow as well.”
Ultimately, the future of cryptocurrencies —
their value, security, and staying power — is
still up in the air. But the experts we spoke to
believe owning some crypto could create value
over time. Whatever your interest or motivation,
experts stress the importance of making sure
you understand the unique volatility and risk
factors of cryptocurrency before investing.
“I think it’s really important to keep your eyes
open,” Johnson says. “Don’t get the FOMO at a
fever, because it’s very volatile. No one should
invest anything that they can’t afford to lose,
and that’s the same advice I give for any kind of
an investment.”