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

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy items 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 sometimes driving rates 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 items and services. Many business have provided their own currencies, typically called tokens, and these can be traded particularly for the great or service that the business provides. Consider 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 using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and tapes transactions. Part of the appeal of this innovation is its security.

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

More than 6,700 different cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to multiply, raising money through preliminary 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the current cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a range of reasons. Here are a few of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, probably before they become more valuable Some supporters like the reality that cryptocurrency removes central banks from handling the money supply, because with time these banks tend to lower the value of cash via inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe and secure than conventional payment systems Some speculators like cryptocurrencies due to the fact that they’re going up in worth and have no interest in the currencies’ long-term approval as a method to move money

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies may go up in worth, but numerous financiers see them as mere speculations, not real investments. The factor? Similar to genuine currencies, cryptocurrencies generate no cash flow, so for you to benefit, someone needs 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 gradually 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 must be noted that a currency needs stability.” As NerdWallet authors have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have actually recommended would-be financiers to avoid them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient way of sending money and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a whole lot of cash? Even if they can send money?” 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 consumers can identify what a reasonable rate is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. 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 again.

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

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