Cryptocurrencies are a hot topic right now in the worlds of finance and investing. Its appeal is entering the mainstream and you may be wondering what exactly cryptocurrencies are, and how long they will be around.
What is currency?
Currency is money, which is a vehicle to represent or hold value. Historically, currency was a commodity or was backed by a commodity like precious metals. Today, most currencies are fiat currencies, which means they are declared legal tender by a government authority.
What is cryptocurrency?
Cryptocurrency is a type of currency built using cryptographic technologies. Initially these currencies were created outside the traditional financial system and intended to be open, free and independent of governments. However, there are also cryptocurrencies issued or being considered by many central banks called central bank digital currencies (CBDCs), which would result in existing fiat currencies being issued in a digital form by a government entity.
How are cryptocurrencies used?
Cryptocurrencies were originally intended as digital cash to complete anonymous transactions. However, because of their sky-rocketing popularity and value many people have started to use them as an investment vehicle. While there are valid reasons to invest in Bitcoin or other cryptocurrencies, there are risks involved. Like any other investment, you should make sure those risks fit into your investment portfolio.
What is the future for cryptocurrencies?
It’s likely that cryptocurrencies are here to stay. The underpinning technology, blockchain, has far reaching uses outside of just cryptocurrencies. Bitcoin and other prominent cryptocurrencies like Ethereum are becoming a widely accepted form of digital payment. Lastly, the central banks of all G7 countries are developing or investigating CBDCs in some capacity, which will likely result in digital forms of government currency for multiple western countries.
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