Unlike fiat currency—e.g., dollars or euros—cryptocurrency is decentralized, meaning it is not issued or controlled by a central authority. It flows from account to account (or digital wallet to digital wallet) through encrypted transactions that are listed in a large, secure public ledger known as a blockchain.
History of cryptocurrency
Although some early forms of cryptocurrency launched in the 1990s, Bitcoin, invented in 2008, was the first cryptocurrency to gain widespread adoption. In the years since, thousands of other cryptocurrencies—often referred to as altcoins—have been introduced. Some are exact replicas of the Bitcoin protocol, while others, like Ethereum, allow for more elaborate transactions, or employ alternative methods of mining coins and tokens.
Why do people use crypto?
For many people, the appeal of crypto is that transactions require no involvement by a third party like a bank or a government. Buyers and sellers can remain anonymous, payments can settle faster and cheaper, and each transaction is secured by cryptography, which makes payments virtually impossible to falsify.
Additionally, there are different forms of cryptocurrency that support new initiatives that are trying to build businesses of the future. These use cases are trying to bring wider access to digital goods and services across the globe, with decentralized business models that run the gamut, including:
- Financial services
- Digital commerce
- Data storage
- Gaming and entertainment
The difference between using crypto versus investing in crypto
Different coins have different uses, making the term “currency” potentially misleading. Crypto can be used for highly specific purposes within a certain network. Ether, for example, is used not only to buy goods and services but also as a way to perform operations on the Ethereum platform.
Though a cryptocurrency can certainly be used to pay for goods and services like Ether, many can also serve as a store of value or speculative investment. A lot of crypto is actually held as an investment, rather than used for a payment transaction. At Betterment, for example, our Crypto Investing portfolios are a diversified investment vehicle rather than a way to use crypto as payment.
Given this difference between the acts of using crypto and investing in crypto, it is often more accurate to refer to many tokens and coins as “crypto assets” when held as an investment.
Why should you care about cryptocurrency?
At Betterment, we see cryptocurrency as a chance to invest in future technology. Investing in crypto may be the first opportunity that all investors, regardless of wealth, have had to participate in an asset class from its beginning. If you think about angel investing or startups, investing in a business during its early days is risky and often limited to a select few insiders. But with crypto, these high-risk and potentially high-reward investment opportunities are open to everyone. It’s a way for any investor to take a piece of their portfolio and invest in the future of technology and finance.
The above material and content should not be considered to be a recommendation. Investing in digital assets is highly speculative and volatile, and only suitable for investors who are able to bear the risk of potential loss and experience sharp drawdowns. Digital assets are not legal tender and are not backed by the U.S. government. Digital assets are not subject to FDIC insurance or SIPC protections.