Cryptocurrency is a form of digital payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino chips. You'll need to exchange real currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security.
Reasons why Cryptocurrencies are so appealing:
- Supporters see cryptocurrencies such as Bitcoin as the future of currency and are racing to buy them now, presumably before becoming more valuable.
- Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since, over time, these banks tend to reduce the value of money via inflation.
- Other supporters like the technology behind cryptocurrencies, the blockchain, because it's a decentralized processing and recording system and can be more secure than traditional payment systems.
- Some speculators like cryptocurrencies because they're going up in value and have no interest in the currencies' long-term acceptance as a way to move money.
If you're looking to buy a cryptocurrency in an Initial Coin Offering (ICO), read the fine print in the company's prospectus for this information:
- Who owns the company? An identifiable and well-known owner is a positive sign.
- Are there other significant investors who are investing in it? It's a good sign if other well-known investors want a piece of the currency.
- Will you own a stake in the company or just currency or tokens? This distinction is significant. Owning a stake means you get to participate in its earnings (you're an owner), while buying tokens means you're entitled to use them, like chips in a casino.
- Is the currency already developed, or is the company looking to raise money to develop it? The further along the product, the less risky the investment.
To buy cryptocurrencies, you'll need a "wallet," an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as Bitcoin or Ethereum.
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