What Is Cryptocurrency? Here’s What You Need to 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 secure yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase items and services, but utilizes an online ledger with strong cryptography to secure online transactions. 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 inquire about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for products and services. Many business have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the excellent or service that the business offers. Think of them as you would arcade tokens or gambling establishment chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout numerous computer systems that handles and tapes transactions. Part of the appeal of this technology is its security.
2. The number of cryptocurrencies are there? What are they worth?
More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing cost to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their supporters for a variety of reasons. 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 prior to they become better Some supporters like the truth that cryptocurrency removes reserve banks from handling the money supply, because with time these banks tend to minimize the value of money by means of inflation Other advocates 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 going up in value and have no interest in the currencies’ long-lasting acceptance as a method to move money
4. Are cryptocurrencies a great investment?
Cryptocurrencies might go up in worth, however numerous investors see them as mere speculations, not real financial investments. The reason? Similar to genuine currencies, cryptocurrencies create no cash flow, so for you to profit, somebody 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 organization, 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 needs to be noted that a currency needs stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the investment community have actually encouraged potential financiers to steer clear of them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable way of sending money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a great deal of cash? Even if they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency requires stability so that merchants and consumers can determine what a reasonable cost is for items. 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 creates a dilemma. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the value next year?