What Is Cryptocurrency? 6 Key Facts You Need to Know

You've likely heard the term "cryptocurrency" or "crypto" in recent years—maybe you’re even familiar with Dogecoin. But what exactly is cryptocurrency? In simple terms, it’s a type of digital currency that operates on a decentralized system known as blockchain.

The origins of cryptocurrency trace back to Satoshi Nakamoto, the pseudonymous figure credited with creating Bitcoin and developing the first blockchain database. To better understand how crypto works, here are 6 key facts you need to know:

1. Cryptocurrency Exists Entirely in Digital Form

Unlike traditional currencies issued by governments and financial institutions, cryptocurrency is purely electronic. There are no physical coins or bills—it's stored as a digital asset within a decentralized financial system.

2. Most Cryptocurrencies Operate on Blockchain Technology

Blockchain is a secure, decentralized ledger that records transactions in "blocks." Once a block is full, it links to the previous one, creating an immutable chain. The use of cryptographic algorithms ensures security, making it difficult for hackers to manipulate records. When you purchase cryptocurrency, your ownership details are stored digitally.

3. You Can Buy, Sell, and Spend Cryptocurrency

Cryptocurrencies function as a medium of exchange, allowing users to buy goods and services. Transactions are processed through crypto exchanges, which may charge fees based on transaction size. To store and manage your crypto, you'll need a digital wallet—a secure app that holds your cryptocurrency.

4. Cryptocurrency Values Are Highly Volatile

Unlike fiat currencies such as the U.S. dollar, cryptocurrencies are not controlled by a central authority, leading to frequent price fluctuations. Investing in crypto can be risky due to its volatility. If you're looking to enter the crypto market, some experts suggest investing in established companies that are integrating blockchain technology rather than purchasing crypto directly.

5. Thousands of Cryptocurrencies Are Available

Bitcoin was the first cryptocurrency, but today, thousands of digital coins exist. Altcoins (alternative coins) continue to emerge, often launched through initial coin offerings (ICOs). Some of the most popular cryptocurrencies include:

• Bitcoin (BTC): The original and most well-known cryptocurrency

• Ethereum (ETH): A blockchain network supporting decentralized applications

• Litecoin (LTC): A faster alternative to Bitcoin

• Cardano (ADA): A blockchain platform designed for secure transactions

• Binance Coin (BNB): A digital currency used on the Binance exchange

  
  

Cryptocurrency exchanges like Coinbase and Binance allow users to buy and trade these digital assets without the need for a traditional banking institution.

6. Cryptocurrencies Are Subject to Taxes

In the eyes of the IRS, cryptocurrencies are treated as property. If you buy, sell, or trade crypto, you may be required to report gains or losses on your taxes. It’s important to keep track of your transactions to ensure compliance with tax regulations.

Final Thoughts

Cryptocurrency is reshaping the financial landscape, offering new opportunities for digital transactions, investments, and decentralized applications. However, its volatility and regulatory considerations make it essential to stay informed before diving in. Whether you're looking to invest or simply understand the basics, knowing how crypto works is key to navigating this evolving industry.

Original article: Navy Federal Credit Union, "What is Cryptocurrency? 6 Things to Know"

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