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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy products and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase goods and services, but uses an online journal with strong cryptography to secure online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving costs skyward.

Here are 7 things to ask about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Numerous business have actually provided their own currencies, frequently called tokens, and these can be traded particularly for the good or service that the business supplies. Think of them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across lots of computers that manages and tapes deals. Part of the appeal of this innovation is its security.

2. The number of cryptocurrencies exist? What are they worth?

More than 6,700 various cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or ICOs. The overall worth of all cryptocurrencies on Dec. 18, 2020, was more than $645.7 billion, according to CoinMarketCap, and the overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans for a variety of reasons. Here are some of the most popular:

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, most likely prior to they become better Some advocates like the fact that cryptocurrency eliminates central banks from handling the cash supply, given that with time these banks tend to decrease the value of cash via inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems Some speculators like cryptocurrencies because they’re going up in worth and have no interest in the currencies’ long-term acceptance as a way to move money

4. Are cryptocurrencies an excellent investment?

Cryptocurrencies may increase in value, however numerous investors see them as simple speculations, not real investments. The reason? Much like real currencies, cryptocurrencies produce no capital, so for you to profit, someone has to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed business, which increases its value with time by growing the success and cash flow of the operation.

For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be kept in mind that a currency needs stability.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have advised prospective investors to stay away from them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient method of transferring money and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a great deal of money? Even if they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency needs stability so that merchants and customers can determine what a reasonable cost 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. By December 2020, it was trading at record levels again.

This rate volatility develops a dilemma. If bitcoins might be worth a lot more in the future, people are less likely to spend and flow them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?

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