Cryptocurrency, or crypto, is a digital payment platform that eliminates the need to carry physical money. It exists only in digital form, and although people mainly use it for online transactions, you can make some physical purchases. Unlike traditional money printed only by the government, several companies sell cryptocurrency.
Cryptocurrencies are fungible, meaning the value remains the same when bought, sold, or traded. Cryptocurrency isn’t the same as non-fungible tokens (NFTs) with variable values. For example, one dollar in crypto will always be one dollar, whereas the value of one NFT dollar depends on the digital asset it’s attached to.
Although government regulations are absent from the cryptocurrency market, it is a taxable asset. You’ll need to file any profit or loss with HM Revenue and Customs.
What is cryptocurrency?
Bitcoin, Ethereum, and other crypto are revolutionizing how we invest, bank, and use money. Read this beginner’s guide to learn more.
At its core, cryptocurrency is typically decentralized digital money designed to be used over the internet. Bitcoin, which launched in 2008, was the first cryptocurrency, and it remains by far the biggest, most influential, and best-known. In the decade since, Bitcoin and other cryptocurrencies like Ethereum have grown as digital alternatives to money issued by governments.
- Cryptocurrencies are usually not issued or controlled by any government or other central authority. They’re managed by peer-to-peer networks of computers running free, open-source software. Generally, anyone who wants to participate is able to.
- If a bank or government isn’t involved, how is crypto secure? It’s secure because all transactions are vetted by a technology called a blockchain.
- A cryptocurrency blockchain is similar to a bank’s balance sheet or ledger. Each currency has its own blockchain, which is an ongoing, constantly re-verified record of every single transaction ever made using that currency.
- Unlike a bank’s ledger, a crypto blockchain is distributed across participants of the digital currency’s entire network
- No company, country, or third party is in control of it; and anyone can participate. A blockchain is a breakthrough technology only recently made possible through decades of computer science and mathematical innovations.
- Crypto makes it possible to transfer value online without the need for a middleman like a bank or payment processor, allowing value to transfer globally, near-instantly, 24/7, for low fees.
Most importantly, cryptocurrencies allow individuals to take complete control over their assets
Key concepts
Transferability Crypto makes transactions with people on the other side of the planet as seamless as paying with cash at your local grocery store.
Privacy When paying with cryptocurrency, you don’t need to provide unnecessary personal information to the merchant. Which means your financial information is protected from being shared with third parties like banks, payment services, advertisers, and credit-rating agencies. And because no sensitive information needs to be sent over the internet, there is very little risk of your financial information being compromised, or your identity being stolen.
Security Almost all cryptocurrencies, including Bitcoin and Ethereum are secured using technology called a blockchain, which is constantly checked and verified by a decentralized network of miners or validators (through mechanisms such as Proof of work or proof of stake.
Portability Because your cryptocurrency holdings aren’t tied to a financial institution or government, they are available to you no matter where you are in the world or what happens to any of the global finance system’s major intermediaries.
Transparency Every transaction on the Bitcoin, Ethereum, Tezos, and Bitcoin Cash networks is published publicly, without exception. This means there’s no room for manipulation of transactions, changing the money supply, or adjusting the rules mid-game.
Irreversibility Unlike a credit card payment, cryptocurrency payments can’t be reversed. For merchants, this hugely reduces the likelihood of being defrauded. For customers, it has the potential to make commerce cheaper by eliminating one of the major arguments credit card companies make for their high processing fees.
Safety The network powering Bitcoin has never been hacked. And the fundamental ideas behind cryptocurrencies help make them safe: the systems are permissionless and the core software is open-source, meaning countless computer scientists and cryptographers have been able to examine all aspects of the networks and their security.
Why is cryptocurrency the future of finance?
Cryptocurrencies are the first alternative to the traditional banking system, and have powerful advantages over previous payment methods and traditional classes of assets. Think of them as Money 2.0. — a new kind of cash that is native to the internet, which gives it the potential to be the fastest, easiest, cheapest, safest, and most universal way to exchange value that the world has ever seen.
- Cryptocurrencies can be used to buy goods or services or held as part of an investment strategy, but they can’t be manipulated by any central authority, simply because there isn’t one. No matter what happens to a government, your cryptocurrency will remain secure.
Why invest in cryptocurrency?
Online exchanges like Coinbase have made buying and selling cryptocurrencies easy, secure, and rewarding.
- It only takes a few minutes to create a secure account, and you can buy cryptocurrency using your debit card or bank account.
- You can buy as little (or as much) crypto as you want, since you can buy fractional coins. For example, you can buy $25.00 worth of bitcoin.
- Many digital currencies, including USD Coin and Tezos, offer holders rewards just for having them.
- On Coinbase, you can earn 1% APY on— that’s much higher than most traditional savings accounts.
- You can also earn up to 5% APY when you stake Tezos on Coinbase. Learn more about Tezos staking rewards.
- Unlike stocks or bonds, you can easily transfer your cryptocurrency to anyone else or use it to pay for goods and services.
- Millions of people hold bitcoin and other digital currencies as part of their investment portfolios.
What can you do with cryptocurrency?
There’s a wide range of things you can do with cryptocurrency, and the list grows with time. Here are a few ways to get started, from participating in everyday activities to exploring new technological frontiers:
- Shop: Over 8,000 global merchants accept cryptocurrency via Coinbase Commerce.
- Donate to causes: There are benefits to donating and accepting crypto, and many nonprofit organizations accept bitcoin donations.
- Gift it: Cryptocurrency makes a great gift for friends and family who are interested in learning about new technology.
- Tip someone: Authors, musicians, and other online content creators sometimes leave Bitcoin addresses or QR codes at the end of their articles. If you like their work, you can give a little crypto as a way of saying thanks.
- Explore unique new combinations of money and technology: Orchid is a VPN, which helps protect you when you’re online, and a digital currency at the same time. Basically it’s broken down into two parts, the Orchid VPN app and the OXT cryptocurrency, and it all runs on the Ethereum network. Intrigued? Read more here.
- Travel the world: Because cryptocurrency isn’t tied to a specific country, traveling with crypto can cut down on money exchange fees. There’s already a small but thriving community of self-titled “crypto nomads” who primarily, or in some cases exclusively, spend crypto when they travel.
- Buy property in a virtual gaming world: Decentraland, which also runs on the Ethereum blockchain, is the first virtual world entirely owned by its users. Users can buy and sell land, avatar clothing, and all kinds of other stuff while partying in virtual nightclubs or mingling in virtual art galleries.
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