What Is Cryptocurrency? Here’s What You Must Know
Cryptocurrencies let you purchase items 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 buy goods and services, however uses an online ledger with strong cryptography to protect online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving rates skyward.
Here are 7 things to ask about cryptocurrency, and what to watch out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for goods and services. Many business have released their own currencies, often called tokens, and these can be traded particularly for the great or service that the business offers. Think about them as you would arcade tokens or gambling establishment chips. You’ll need to exchange genuine currency for the cryptocurrency to access the good or service.
Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized technology spread throughout lots of computers that handles and tapes transactions. Part of the appeal of this technology is its security.
2. The number of cryptocurrencies exist? What are they worth?
More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The total 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 current rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their supporters for a variety of factors. Here are some of the most popular:
Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they end up being more valuable Some supporters like the truth that cryptocurrency gets rid of reserve banks from managing the money supply, considering that over time these banks tend to lower the value of cash via inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more protected than traditional payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-lasting approval as a way to move cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies might go up in value, but many financiers see them as mere speculations, not real investments. The reason? Much like genuine currencies, cryptocurrencies create no capital, so for you to profit, someone needs to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed service, which increases its value over 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 needs to be noted that a currency requires stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment community have actually advised prospective financiers to steer clear of them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of transferring money and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a lot of cash? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency requires stability so that merchants and customers can identify what a reasonable cost is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For instance, while Bitcoin traded at close to $20,000 in December 2017, its worth then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels once again.
This cost volatility produces a dilemma. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and distribute them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?