Bitcoin’s new all-time high and the Trump administration’s crypto-friendly stance have pushed this buzzy area of finance into the spotlight. But terms like ETFs, blockchains and cold wallets can make the topic seem daunting for beginners.
Founded in 2009, cryptocurrencies use complex computer code to mint virtual coins that can be exchanged on decentralized networks. Transactions are recorded publicly on tamper-proof ledgers, called blockchains, that eliminate the need for a central authority to verify them. Bitcoin is the most prominent cryptocurrency, but numerous others have proliferated in recent years.
One of the biggest, most established and best-known is Ethereum, whose tokens (ETH) are the second largest after Bitcoin. Its platform allows for a wider range of applications than Bitcoin and boasts faster processing times and lower costs. Like other cryptocurrencies, it’s also vulnerable to price fluctuations.
A new generation of stablecoins link their prices to the value of assets, like dollars and euros, to help stabilize them. These coins are viewed as the future of finance, but high profile price collapses have sparked scrutiny about whether they’re truly stable.
Many of the same concerns that apply to traditional financial markets could be applied to cryptocurrencies, including speculative trading and the possibility of fraud. As the sector evolves, regulators are working to craft rules that limit risks without stifling innovation. They’re also considering ways to give investors the same protections they enjoy in more traditional finance, such as deposit insurance.
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