Cryptocurrencies are a digital phenomenon. Created in 2009 by the pseudonymous software engineer Satoshi Nakamoto, bitcoin and hundreds of other virtual coins are traded on decentralized computer networks between people with online wallets. Transactions are recorded on public, tamper-proof ledgers known as blockchains, which eliminate the need for central authorities like banks. Proponents say cryptocurrencies will usher in the next financial revolution by empowering people to wrest control from central banks and Wall Street. But critics allege that they empower criminals, terrorist groups and rogue states by circumventing economic sanctions, stoking inequality with wild price volatility and consuming vast amounts of energy for mining activities.
Regulatory uncertainty also plagues the industry, with governments around the world wrestling to develop rules that limit traditional financial risks without stifling innovation. The remittance economy is one of crypto’s most popular use cases, and it raises questions about whether cryptocurrencies are truly anonymous, as claimed. They leave a digital trail that law enforcement can follow.
Investors face other risks as well, including the risk of theft or loss. Many cryptocurrencies are stored on exchanges or other third-party servers, and a hack could lead to significant losses. Furthermore, cryptocurrencies do not offer the same consumer protections as credit cards, such as liability limits for fraud or chargebacks. And because of their soaring prices, they can be volatile investments. In fact, during a recent bout of volatility in 2022, the value of some cryptocurrencies was knocked off their peg to traditional currencies.