I have a couple of friends who are really into cryptocurrencies. They’ve been swapping crypto for a while, and some of them have made a lot of money! They’ve encouraged me to get into crypto, too, and I’m honestly pretty intrigued. But I’m also very wary of investing in anything that I don’t fully understand myself — and I have to admit that I don’t understand cryptocurrency at all!
I’ve heard of the big cryptocurrencies, of course: my friends trade ones like XRP, for instance. But I don’t understand how cryptocurrencies actually work, or what they’re used for, and that makes me nervous. My friends seem to be bad at explaining all of this, so I’m hoping the experts can help!
Cryptocurrencies are very exciting and have a lot of people interested in investment opportunities. But cryptocurrencies are also not well understood by many people — including some of the people trading them! So let’s set the record straight and explain what cryptocurrencies are, where they came from, and where they might be going.
At its most basic, a cryptocurrency is a form of digital money. Though cryptocurrency is very different in some ways from, for instance, U.S. dollars, a cryptocurrency is nevertheless a currency just like dollars, pounds, or euros. Cryptocurrencies were designed to serve as money.
Why digital money? Well, there are a few reasons, and convenience is certainly one. In an age where so few of us carry cash, it makes sense for money to exist in a digital form. Another key to cryptocurrency’s appeal is the fact that it is not produced by a government. That makes it less beholden to privacy and regulatory concerns, though it also means that it lacks the backing of a big, trusted institution.
Speaking of trust, there’s a reason that we’re seeing an explosion of cryptocurrencies in recent years. The idea of creating a digital currency is far from new, but there were always problems with digital currencies in the past. When you put your money online, you’re at risk from hackers, and keeping track of who owned what digital dollars and cents was a real problem for early digital currencies.
Then the blockchain came along. Blockchain technology is a super-secure way of recording data. Modern digital currencies use blockchain as a digital ledger that records ownership of cryptocurrency. Transactions are recorded securely in the blockchain, so there’s no confusion about who owns what.
Cryptocurrencies were designed to be spent and saved like U.S. dollars are, but there has never been anything like them — so there has been a lot of speculation about how much they are really worth. Just as there are exchange rates between dollars and pounds, there are exchange rates between cryptocurrencies like XRP and older currencies like dollars, pounds, and so on. Those rates fluctuate quite a bit, which has made cryptocurrency more popular for investment and speculation than for its intended use as currency — at least for now. So when you check a site to see the price of XRP, you’re seeing the exchange rate of XRP to U.S. dollars. Investing in a cryptocurrency just means exchanging dollars for crypto, which you can then “sell” back to anyone willing to exchange it back to dollars — more dollars, hopefully, than you spent on it.
You can invest in cryptocurrencies just like you would any other currency or commodity. Track the values online using cryptocurrency news sites. Remember to keep a balanced portfolio of investments — having investments in cryptocurrencies is a great idea, but having all of your money in cryptocurrencies (or, worse yet, in just one particular cryptocurrency) is risky. Invest wisely, and join your friends in the cryptocurrency market if you feel you can afford to! The crypto market is a very exciting place to be right now.