Cryptocurrency Explained With Pros and Cons for Investment

The delegator gets a share of the rewards the validator wins. In 2021, the government of El Salvador became the first nation to accept Bitcoin as an official currency. As such, citizens should be able to use Bitcoin to pay taxes and other government services. In the early days of Bitcoin, many hoped that the cryptocurrency could and would be used to buy everyday items, such as a pizza. In 2010, Laszlo Hanyecz bought $41 worth pizza from Papa John’s, for which he paid 10,000 bitcoin at the time.

• It is not a physical unit, like a coin or a dollar bill, but rather a mathematical computation.
• When a transaction is made, the node creating the transaction broadcasts details of the transaction using encryption to other nodes throughout the node network so that the transaction is known.
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Be sure to check with your accountant or tax advisor for how your crypto usage may affect your taxes. Others, meanwhile, may obtain value by being backed by a real-world asset or some other utility. Stablecoins, for instance, are cryptos that try to peg their value to a benchmark, like the US dollar. Bitcoin, Ether, Litecoin, and Monero are popular cryptocurrencies. The May 2022 collapse of the Luna currency operated by Terra also led to reports of suicidal investors in crypto-related subreddits. On 20 April 2021, Venmo added support to its platform to enable customers to buy, hold and sell cryptocurrencies.

Bitcoin basics

Consult an attorney, what is cryptocurrency professional, or other advisor regarding your specific legal or tax situation. Virtual Assistant is Fidelity’s automated natural language search engine to help you find information on the Fidelity.com site. As with any search engine, we ask that you not input personal or account information. Information that you input is not stored or reviewed for any purpose other than to provide search results. Responses provided by the virtual assistant are to help you navigate Fidelity.com and, as with any Internet search engine, you should review the results carefully.

A decline in value or a complete loss are possible at any time. The loss of access to data and passwords can also lead to a complete loss. But, other than the digital assets pinned to fiat currencies, the value of cryptocurrencies hasn’t been able to replicate the level of stability needed to function effectively as a medium of exchange.

Potential impacts of cryptocurrency

Also like the stock market, the crypto market can be extremely volatile, so investing in cryptocurrency comes with a certain amount of risk. Cryptocurrencies rely on cryptography to make changes to the blockchain, connect blocks, and ensure they stay in the correct order and to encrypt the users’ passwords when they are requesting transactions. Increasing processing power and techniques like quantum computing could eventually crack encryption, which may allow hackers to access crypto wallets. Products such as exchange-traded funds , trusts, futures, and mutual funds that track cryptocurrencies or groups of cryptocurrencies.