Advertiser Disclosure

What Is Cryptocurrency? Here’s What You Should Know

Cryptocurrencies let you buy goods and services, or trade them for profit. Here's more about what cryptocurrency is, how to buy it and how to protect yourself.
June 18, 2019
Cryptocurrency for Beginners: 7 Things You Need to Know

Like any currency, cryptocurrencies can be used to buy goods and services. But unlike other currencies, cryptocurrencies are digital and use cryptography to provide secure online transactions.

While cryptocurrencies can be used to buy things, much of the interest in these unregulated currencies is to trade them for profit, with speculators at times driving prices skyward.


In this article:

1. What is cryptocurrency?
2. How many are out there, and what are they worth?
3. Why are they so popular?
4. Are they a good investment?
5. How do I buy cryptocurrency?
6. Are cryptocurrencies legal?
7. How can I protect myself?

1. What is cryptocurrency?




More than 2,200 different cryptocurrencies are traded publicly, according to, a market research website. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or ICOs. The total value of all cryptocurrencies on June 6, 2019 was about $246 billion, according to CoinMarketCap, and the total value of all bitcoins, the most popular digital currency, was pegged at about $136 billion.

3. Why are they so popular?


  • Supporters see cryptocurrencies such as bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
  • Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation

4. Are they a good investment?

Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit someone has to pay more for the currency than you did.



As NerdWallet writers have noted, cryptocurrencies such as bitcoin may not be that safe, and some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared bitcoin to paper checks: “It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?”

For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while bitcoin traded at close to $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later. In May 2019 it topped $8,000.


5. How do I buy cryptocurrency?


To buy cryptocurrencies, you’ll need a “wallet,” an online app that can hold your currency. Generally, you create an account on an exchange, and then you can transfer real money to buy cryptocurrencies such as bitcoin or ethereum. Here’s more on how to invest in bitcoin.

Coinbase is one popular cryptocurrency trading exchange where you can create both a wallet and buy and sell bitcoin and other cryptocurrencies. Also, the online broker Robinhood offers free cryptocurrency trades (Robinhood Crypto is available in most, but not all, U.S. states).

6. Are cryptocurrencies legal?

There’s no question that they’re legal in the United States, though China has essentially banned their use, and ultimately whether they’re legal depends on each individual country. Also be sure to consider how to protect yourself from fraudsters who see cryptocurrencies as an opportunity to bilk investors. As always, buyer beware.

7. How do I protect myself?

If you’re looking to buy a cryptocurrency in an ICO, read the fine print in the company’s prospectus for this information:

  • Who owns the company? An identifiable and well-known owner is a positive sign.
  • Are there other major investors who are investing in it? It’s a good sign if other well-known investors want a piece of the currency.
  • Will you own a stake in the company or just currency or tokens? This distinction is important. Owning a stake means you get to participate in its earnings (you’re an owner), while buying tokens simply means you’re entitled to use them, like chips in a casino.
  • Is the currency already developed, or is the company looking to raise money to develop it? The further along the product, the less risky it is.

If you’re looking to buy a cryptocurrency in an ICO, you should read the fine print in the company’s prospectus.


But beyond those concerns, just having cryptocurrency exposes you to the risk of theft, as hackers try to penetrate the computer networks that maintain your assets. One high-profile exchange declared bankruptcy in 2014 after hackers stole hundreds of millions of dollars in bitcoins. Those aren’t typical risks for investing in stocks and funds on major U.S. exchanges.

If you’d prefer to stay in the more established realm of stock investments, see our round-up of the best online stock brokers.

About the authors