What are Cryptocurrencies?

May 15, 2020

Cryptocurrency (also sometimes referred to as virtual currency, digital currency or digital assets) is a digital representation of value that functions as a medium of exchange, a unit of account and/or a store of value. In some environments, it operates like “real” (or fiat) currency, but it does not have legal tender status in the United States. Cryptocurrency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as “convertible” cryptocurrency. Bitcoin is an example of a convertible cryptocurrency.

Some cryptocurrencies operate on public distributed ledger systems that capture “blocks” of transactions (sometimes referred to as blockchains). These cryptocurrencies rely on dispersed, independent computers, or groups of computers, around the world to confirm transactions. Other cryptocurrencies operate on private ledger systems that are governed by a single entity.

Most crypto trading involves a crypto brokerage or network that allows you to transfer your fiat money into a digital currency. Currently, most traders can only go long or buy crypto and cannot short crypto unless they are trading futures.

Though Bitcoin was the first cryptocurrency and is the most popular, several newer coins have entered the mainstream. These are known as alternative coins (or altcoins) and include coins like Ethereum, Litecoin, and XRP. But there are many others available to trade, and the safety or viability of many of the altcoins can be a risk. Like any investment, know the specifics of what you are trading.

The keys (usually a series of alphanumeric characters) that are used to send and receive cryptocurrency need to be stored in a digital wallet. A digital wallet is simply a software program that stores cryptocurrency keys and lets you view balances and make transactions.

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