What is Cryptocurrency?

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Cryptocurrency… It's on everyone's radar nowadays. It's in the news, people talk about it at school, and your parents might even bring it up! However, very few teens and adults have a strong understanding of its risk and utility.


First, let’s define cryptocurrency. Cryptocurrency, often shortened to crypto, is a decentralized virtual currency that is distributed across a network of computers. The decentralized network is referred to as the blockchain. We will get more into that later. Since cryptocurrency is decentralized, it is not regulated by a central authority, like the US dollar.


Cryptocurrency can be obtained by investors in two ways. It can be mined or purchased on exchanges. Mining refers to the process of computers solving complex mathematical problems to earn cryptocurrency. This process is often costly and inefficient due to the mathematical problems becoming increasingly difficult to solve as more currency is put into circulation. Secondly, you can purchase cryptocurrency like a traditional stock, through an exchange. 


Despite currency’s core purpose for exchanging value, like how you would buy clothes with US dollars, cryptocurrency is hardly used by consumers to purchase goods and services. There are several online stores and businesses that do accept cryptocurrency as a payment method, however, uncommon. More frequently cryptocurrency is used as an investment because of its popularity and high growth.


Before moving forward and making a decision to buy your first crypto as a teen, it is important to consider the advantages and disadvantages associated with having it as a holding. 


The great thing about cryptocurrency is that it provides an easier way to transfer funds between parties. There is no need for a middleman, like a bank, with cryptocurrency! Secondly, holding cryptocurrency has the ability to appreciate and potentially outpace inflation. Many investors claim anonymity to be another advantage, but in reality, they leave a digital trail that can be followed and deciphered.  


These advantages are all great, but they come at several costs. Most notably it comes at the cost of funding criminal activities. Since there is little regulation around the industry, it has become the currency of choice for criminals. Additionally, cryptocurrency is highly volatile. It has historically surged in value and crashed in the case of Bitcoin in 2017. 


And that’s a taste of cryptocurrency! It’s a complex tool that comes at high risk and high reward. Before we go any further, let’s check out the history of cryptocurrency


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This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States).

View Alpaca's disclosures at: https://alpaca.markets/disclosures

Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security’s eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on a principal or riskless principal basis, and can only be bought or sold with market orders during normal market hours.

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