A beginner’s guide to cryptocurrency

Just as important, bitcoin hasn’t held its value over the short term, a key attribute for any currency. The value of the U.S. dollar creeps up and down relative to other countries’ currencies, and its buying power shrinks over time because of inflation. But it doesn’t jump up 33% in a week, as bitcoin did the first week of October, or lose almost a quarter of its value in a week, as bitcoin did in mid-May. A 2017 study found bitcoin prices to be 30 times more volatile than the dollar, the euro or the yuan.

On top of that, you have to pay fees to get your cryptocurrency payments or other transactions added to the blockchain. Those fees tend to be a small percentage of the transaction’s value, less than what merchants pay to credit-card processors. But if you want your transaction processed quickly, you may have to pony up a bigger fee. Otherwise, the wait could be hours or even days.

Given the dramatic price swings and other drawbacks, why would anyone use bitcoin or similar technologies as a medium of exchange? Possibly because crypto coins can be spent anonymously, like cash, but at a distance. That may explain why digital coins are the payment of choice in ransomware schemes and dark web contraband purchases.

For those who really want to use their cyber coins as currency, there is a class of tokens called stablecoins whose value is tied to the value of the dollar or some other non-cryptographic asset. The most popular of these is called Tether; its creators pledge that each Tether token is backed by $1 in cash and other reserves (although the value of those reserves has been disputed), and its price has remained at or close to $1 for much of its history.