What is cryptocurrency?
A digital payment system known as cryptocurrency doesn't rely on banks to validate transactions. Peer-to-peer technology makes it possible for anybody, anywhere, to send and receive payments.
Payments made using cryptocurrencies do not exist as actual physical coins that can be transported and exchanged; rather, they only exist as digital entries to an online database that detail individual transactions.
A public ledger keeps track of all bitcoin transactions that involve money transfers. Digital wallets are where cryptocurrency is kept.
Cryptocurrency risks
More than stock exchanges, cryptocurrency exchanges are susceptible to hacking and are frequently the target of other illicit activity. Investors who had their digital currencies stolen as a result of security breaches suffered significant losses, which prompted many exchanges and third-party insurers to start providing insurance against hackers.
Safely storing cryptocurrencies is also more difficult than owning stocks or bonds.
Cryptocurrency exchanges such as Coinbase (NASDAQ:COIN) make it fairly easy to buy and sell crypto assets such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), but many people don't like to keep their digital assets on exchanges due to the risks of allowing any company to control access to their assets.
Storing cryptocurrency on a centralized exchange means you don't have full control over your assets. An exchange could freeze your assets based on a government request, or the exchange could go bankrupt and you'd have no recourse to recover your money.
Some cryptocurrency owners prefer offline "cold storage" options such as hardware wallets, but cold storage comes with its own set of challenges. The biggest is the risk of losing your private key; without a key, it's impossible to access your cryptocurrency.
Furthermore, there is no assurance that a cryptocurrency project you fund will be profitable. Thousands of blockchain projects are in intense competition, and many of them are nothing more than frauds. The majority of cryptocurrency initiatives won't succeed in the end.