What are cryptocurrencies?
Completely virtual form of money invented by computer programmers for peer-to-peer digital transactions. Its value is determined by demand.
Digital currency is not ownership of a company like stocks or interest-paying debt like a bond. It is also not a commodity like oil.
How many cryptocurrencies are there?
As of January 2021, there were more than 6,700 (Vanguard). And on May 20, 2021, Jerome Powell said the Federal Reserve would have a U.S. Digital Currency announcement this summer.
Where is cryptocurrency stored?
Cryptocurrencies are stored in “digital wallets,” which are stored somewhere on the internet and act as a virtual bank account.
What is the technology behind it?
Blockchain is the underlying technology that makes cryptocurrency possible, and it is the most interesting part of the innovation. It is a ledger of ownership.
Blockchain supports all kinds of transactions and tracking that go beyond digital currency. It helps track ownership and royalty payments for music and art through non-fungible tokens (NFTs). Blockchain could also help securely share medical data and track greater logistic detail for companies.
How is digital currency used?
A limited number of stores will accept a few types of cryptocurrency as payment. It is more commonly used as a vehicle of speculation by individuals hoping to sell it to someone else for more U.S. dollars.
Those trying to hide transactions from the government find cryptocurrency incredibly alluring as well. For example, the Colonial Pipeline in May 2021 paid hackers nearly $5 million worth of Bitcoin to reopen the gas line operations.
How is digital currency different from regular money?
(1) While images display digital currencies like gold coins, in reality they are not tangible but digital. They exist only on the internet.
(2) Cryptocurrency is more difficult to spend on real goods and services. Cryptocurrency value fluctuates so much that it would be impractical to accept it as payment without calculating its value in U.S. dollars at the moment of a transaction.
(3) The creators are often anonymous. Ongoing management of the currencies has no transparent, central authority.
Cryptocurrency prices fluctuate widely. They may be difficult to sell quickly at a reasonable price. They are not supported by any government, are subject to cybersecurity risks, do not have any intrinsic value, and do not generate any cash flows, dividends, or interest. This article is not a solicitation, offer, or recommendation to buy or sell. There is a potential for loss as well as gain. Past performance is no guarantee of future results.
