El Salvador has adopted Bitcoin as its official currency. In late 2021, a bitcoin exchange-traded fund launched on the New York Stock Exchange. According to Elliptic, a blockchain analytics firm, at least $48 million in bitcoin and other cryptocurrency contributions were delivered to Ukraine when Russia assaulted the country.

Bitcoin has developed into a trillion-dollar industry in the ten years since its birth, piqueing the interest of certain cryptocurrency supporters who believe it is the future of money and payment systems or — insert your word of choice here (the energy grid, the creator economy, Twitter).

However, as the digital currency has gained in popularity, detractors have labeled it speculative, seen it as a way to launder money, and claimed that mining it has negative environmental repercussions.

Here’s a rundown of how cryptocurrencies function, what you can purchase with them, and the rules (or lack thereof) that govern digital currency.

What exactly is cryptocurrency?

Cryptocurrencies are non-counterfeitable digital currencies based on blockchain technology. The most well-known cryptocurrency, bitcoin, was originally launched in 2009 and began trading on exchange systems in 2010.

What about the blockchain technology itself? Laura Shin, a cryptocurrency journalist and podcaster, offered the following example to Marketplace: Consider it a Google Spreadsheet.

It’s similar to the traditional ledgers where banks kept track of their clients’ monies. This one, though, is a lot more complicated. According to Shin, blockchain enables us to have a single ledger that everyone can view at any moment.

Shin believes bitcoin is a more transparent kind of money, and that the technology that underpins it will allow financial transactions to be more affordable over time.

What are the different sorts of cryptocurrency?

There are dozens of cryptocurrencies listed on CoinMarketCap, but ethereum (also known as ether) and tether are two of the more well-known ones.

There are some cryptocurrencies, such as dogecoin, that began as a joke and grew in popularity thanks to Tesla co-founder Elon Musk.

Last year, the popularity of nonfungible tokens, or NFTs, soared. These tokens, which are part of the Ethereum block chain, represent a digital asset and prove that the buyer is the rightful owner. According to Marketplace reporter Matt Levin, they may take the form of anything, including tweets and digital basketball “cards” with highlight footage from NBA games.

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The first NFT artwork sold at auction was a digital collage named “Everydays: The First 5000 Days” by digital artist Beeple, which earned approximately $70 million.

What and how can you purchase with cryptocurrency?

Anything that the seller or another party agrees to, technically. The first physical item transaction occurred more over a decade ago, when Laszlo Hanyecz of Florida promised 10,000 bitcoin on a forum to anybody who could purchase him two giant pizzas from Papa John’s.

The procedure has now gained greater legitimacy. Through third-party applications, a number of prominent stores have begun to accept bitcoin as a means of payment.

Several retailers, including GameStop, Nordstrom, and Petco, accept bitcoin payments using the Flexa payment network, which includes an app called Spedn. This software generates a QR code that you may scan at checkout to change your bitcoin into dollars (similar to Apple Pay).

Meanwhile, the Starbucks app enables you to replenish cash using Bakkt, a digital wallet that allows you to store and transfer digital assets like cryptocurrencies. Some websites, such as Newegg.com, even enable you to purchase with bitcoin directly.

Is cryptocurrency a safe investment?

While bitcoin has grown in popularity, it remains a dangerous investment.

“Even in the last few weeks, we’ve seen that market volatility is not independent of conventional sources of macro-volatility,” said Michael Young, an assistant professor of finance at the University of Missouri.

He added that bitcoin has lately fluctuated in price, much like the stock market.

Young, who owns cryptocurrencies, said that if you’re thinking about investing in bitcoin, you should think about your time horizon and risk tolerance.

Young, who is in his early thirties, said that a 40% loss in the value of his bitcoin assets would not bother him. However, other individuals, such as his parents, are approaching retirement and cannot afford such losses. “What you invest in should be something you’re happy with,” Young remarked.

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Cryptocurrency retirement funds are being created by several exchanges, such as Coinbase.

Chris Farrell, a senior economics writer for Marketplace, told us that he does not believe placing cryptocurrencies — even a tiny fraction — in the stock market is a smart idea.

“Now I’m going to receive a lot of complaints from strong proponents for crypto investment,” Farrell remarked. “However, look at the crypto ecosystem: it’s loud, volatile, and opaque.” And we’re discussing your retirement funds. This is money that will contribute to your financial stability as you become older.”

Young noted that one piece of general financial advice he usually provides to individuals is that they should comprehend what they’re investing in at the end of the day.

What rules and regulations apply to bitcoin?

Cryptocurrency is still unregulated, according to Global Legal Insight. “Little formal regulation has happened” with respect to cryptocurrency, according to Global Legal Insight.

According to Gil Luria, a technology strategist at D.A. Davidson, you can control the players and the firms that deliver bitcoin, but you can’t govern the technology.

Some features of bitcoin are governed by various regulatory authorities. According to NASDAQ’s Decoding Crypto series, the Securities and Exchange Commission applies existing securities regulations to digital assets, which means that investors must declare realized profits and losses from their cryptocurrencies on their taxes.

Also included in the White House’s $1 trillion infrastructure package, which President Joe Biden signed into law late last year, is a new cryptocurrency provision. To help pay for the bill, legislators inserted new reporting requirements for digital assets, which, according to projections from the Joint Committee on Taxation, could earn $28 billion over the next decade.

The Internal Revenue Service will require “brokers” to provide information on transactions exceeding $10,000. The bill’s broadened definition of “broker,” which is defined as someone who “is accountable for frequently providing any service effectuating transfers of digital assets on behalf of another person,” has received criticism.

This implies that anybody, even software engineers and bitcoin miners, might be deemed a broker, according to the Electronic Frontier Foundation. “The need to gather customers’ names, addresses, and transactions” means “almost any organization even marginally associated to bitcoin may be obliged to spy its consumers,” according to the EFF.

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What are the reactions of the large banks and mainstream organizations to bitcoin?

The large banks have begun to incorporate cryptocurrencies, but they haven’t been enthusiastic. JPMorgan Chase now has its own digital currency, JPM Coin, and has made cryptocurrency assets available to wealth management customers.

“I personally believe that bitcoin is worthless,” stated Jamie Dimon, the bank’s chairman and CEO, late last year. Regardless of his personal sentiments, Dimon said that he wanted to be able to provide “legal, clean as feasible” access to digital currencies to his customers.

Wells Fargo is also selling cryptocurrency funds to its high-net-worth customers, while Goldman Sachs is trading bitcoin futures alongside Galaxy Digital, a cryptocurrency merchant bank.

Chair Jerome Powell of the Federal Reserve suggested the prospect of the United States developing its own digital currency, claiming that doing so would make bitcoin obsolete. Powell was questioned at a hearing in September by Republican House Representative Ted Budd of North Carolina whether this meant he would prohibit or restrict cryptocurrencies like China, to which Powell replied that he had “no intention.”

The Federal Reserve produced a study last month that looked at the costs and advantages of a digital currency but did not make a recommendation for or against it.

Janet Yellen, the Treasury Secretary and former Chair of the Federal Reserve, has raised reservations about cryptocurrencies, telling CNBC that she doesn’t believe bitcoin is “widely utilized as a transaction method” and is concerned that “it’s commonly used for criminal financing.”

“It’s a highly inefficient method of doing transactions,” she added, “and the amount of energy spent in processing those transactions is startling.”

Bitcoin mining consumes a lot of energy, according to studies, resulting in 30,700 tons of e-waste per year, which is similar to the garbage produced by the whole Netherlands from IT and telecommunications equipment such as mobile phones and computers.

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