Cryptocurrencies have risen from digital novelties to trillion-dollar technologies that promise to change the way people invest and transact money. But the digital assets are rife with security risks, ranging from hacking to price volatility. The cryptocurrencies are stored on blockchains, decentralized databases secured with cryptography. Many of the coins are speculative investments, purchased by individuals hoping that they will rise in value. The volatile prices have made them a prime target for scams, and the fact that investors trust exchanges to keep their digital assets safe can lead to large investor losses.
Unlike traditional currencies, cryptocurrency values are determined by market supply and demand, and they can fluctuate wildly. Some cryptocurrencies, called stablecoins, claim to be fixed by backing them with other assets, such as precious metals or fiat currency; these coins typically have lower prices than those that are not pegged. But a spike in bitcoin volatility in 2022 knocked many stablecoins off their pegs and reduced their value.
Cybercriminals are increasingly using cryptocurrencies to buy and sell illicit goods and services, such as ransomware attacks that hijack and shut down computer networks, or to launder the proceeds of crimes including terrorism, drug cartels, and sanctions-evasion. The cryptocurrency craze has also prompted governments to take steps to regulate the emerging sector, including defining it as a security, and establishing laws that crypto exchanges and online brokerage firms must follow. But the nascent industry’s fast growth and evolution have created a regulatory Wild West, and some experts fear that government overreach could dampen innovation.