Cryptocurrencies have exploded in value since their creation in 2009. They are digital tokens that allow people to make transactions over decentralized computer networks. They get their value from supply and demand and are not backed by any government or other central authority. Instead, they are governed by algorithms and community consensus. Bitcoin is the best-known cryptocurrency, created in 2009 by Satoshi Nakamoto — a pseudonymous software engineer whose real identity remains unknown. Its popularity has increased, but other cryptocurrencies are also growing in use and have their own unique attributes.
Proponents say cryptocurrencies can empower individuals while limiting the power of central banks and Wall Street. But critics see them as tools for criminal activity and sanctions evasion. They are also prone to extreme market volatility and consume vast amounts of electricity to mine them.
In the United States, policymakers are addressing these issues by regulating cryptocurrencies and the emerging digital asset finance (DeFi) sector. The SEC has approved exchange-traded funds that include crypto assets, and lawmakers have proposed further steps to regulate the nascent industry.
The cryptocurrency space is highly speculative, and investors face big gains or losses. Investors also face less regulatory protection for their crypto investments than they do for traditional financial products like stocks, bonds, and mutual funds. Moreover, the crypto market is susceptible to hacking, with several high-profile security breaches that have cost start-ups millions. This volatility makes many experts wary of investing in the sector.