Bitcoin Gavin Andresen

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 protect yourself.

Many or all of the items featured here are from our partners who compensate us. This might influence which products we blog about and where and how the item appears on a page. However, this does not influence our evaluations. Our viewpoints are our own.

A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase items and services, but uses an online journal with strong cryptography to secure online deals. 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 watch out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for products and services. Many companies have provided their own currencies, typically called tokens, and these can be traded specifically for the good or service that the company supplies. Consider 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 throughout many computer systems that manages and records 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 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 total value 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 check the current rate to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

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

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably prior to they end up being more valuable Some supporters like the reality that cryptocurrency eliminates central banks from managing the money supply, given that in time these banks tend to decrease the value of cash through inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more safe and secure than traditional payment systems Some speculators like cryptocurrencies since they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move cash

4. Are cryptocurrencies an excellent investment?

Cryptocurrencies might go up in worth, but lots of financiers see them as simple speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies produce 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 greater fool” theory of investment. Contrast that to a well-managed business, which increases its worth 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 must be noted that a currency requires stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have actually encouraged potential investors to stay away from them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of sending cash and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a whole lot of cash? Just because they can send 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 identify what a reasonable rate is for goods. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For example, while Bitcoin traded at near $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 price volatility creates a dilemma. If bitcoins might be worth a lot more in the future, people are less most likely to invest and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

Do NOT follow this link or you will be banned from the site!