Cryptocurrency is virtual money that is able to circulate without any input from banks. It’s a digital asset, so you can’t hold it or touch it as you would with pound coins or notes.

How does cryptocurrency work?

Cryptocurrency is decentralized, meaning that it is not governed by a central authority like governments, central banks or financial institutions.

Instead it operates on a peer-to-peer network, with transactions being recorded on a public ledger using blockchain technology.

This allows data to be shared globally, in order to verify transactions and prevent fraudulent double spending of cryptocurrencies.

While transactions are recorded on this public ledger, the details of the people trading cryptocurrencies are not – you remain anonymous, which can be part of their appeal.

What causes crypto price fluctuations?

Like all financial markets, cryptocurrency moves up and down. But the cryptocurrency market differs from the stock market in the degree of volatility in that it moves very fast.

These fluctuations can be scary, but for some investors they are the key to making money with cryptocurrency. This means it’s important to try to understand what makes prices move.

Here are some of the main catalysts for price changes:

Media coverage

Crypto traders are avid readers of press coverage of their coins. Either positive or negative news can cause them to buy or sell coins, moving the market very quickly.

Integration

Cryptocurrencies are becoming more and more widely used as a means of exchange for purchasing goods. And since they are accepted by more points of sale and are integrated in more banking and payment systems, prices tend to increase.

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Wider events

Political events and government decisions relating to cryptocurrencies also move the market. For example, when China put in more stringent rules on bitcoin mining the price of the currency fell dramatically.

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