Cryptocurrency, sometimes referred to as crypto or digital currency, is a form of digital money that uses cryptography to secure transactions. Unlike traditional currencies, cryptocurrencies are decentralized and do not have a central issuing or regulatory authority. Cryptocurrency is based on blockchain technology and is created using cryptographic techniques that allow people to buy, sell, or trade them securely. Cryptocurrencies are a novel and exciting asset class, but buying them can be risky.
Transactions are recorded in “blocks” that are then linked in a “chain” of previous cryptocurrency transactions. This blockchain is an open, distributed ledger that records transactions in code and is updated simultaneously with new information, keeping all records identical and accurate. To prevent fraud, each transaction is verified using a validation technique such as proof of work or proof of stake. Proof of work and proof of stake are the two most commonly used consensus mechanisms for verifying transactions before adding them to a blockchain.
Verifiers are rewarded with cryptocurrency for their efforts. However, the race to solve blockchain puzzles can require a lot of energy and electricity, meaning miners may barely break even with the cryptocurrencies they receive to validate transactions after considering energy and computing resource costs. You can use cryptocurrencies to buy regular goods and services, although most people invest in cryptocurrencies as they would in other assets such as stocks or precious metals. Some brokerage platforms such as Robinhood, Webull and eToro allow you to invest in cryptocurrencies in addition to cryptocurrency exchanges.
It's best to keep in mind that buying individual cryptocurrencies is similar to buying individual stocks - they are risky assets. Experts have mixed opinions about cryptocurrency investing. Because cryptocurrencies are a highly speculative investment, with the potential for intense price fluctuations, some financial advisors don't recommend that people invest at all. However, the original cryptocurrency is down 35% so far this year while Bitcoin has seen an appreciation of more than 1,000% over the past five years.
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