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.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase items and services, however uses an online ledger with strong cryptography to protect online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.
Here are seven things to inquire about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for products and services. Many business have issued their own currencies, typically called tokens, and these can be traded specifically for the good or service that the business supplies. 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 excellent or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread throughout many computer systems that handles and tape-records transactions. Part of the appeal of this innovation is its security.
2. How many cryptocurrencies are there? What are they worth?
More than 6,700 different cryptocurrencies are traded publicly, 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 check the existing price to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their fans for a range of factors. 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 before they end up being more valuable Some advocates like the fact that cryptocurrency gets rid of reserve banks from handling the cash supply, because with time these banks tend to decrease the value of cash through inflation Other fans like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe and secure than traditional payment systems Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-lasting acceptance as a way to move cash
4. Are cryptocurrencies a good investment?
Cryptocurrencies might increase in worth, but numerous financiers see them as simple speculations, not real investments. The reason? Much like real currencies, cryptocurrencies produce no capital, so for you to benefit, somebody has to pay more for the currency than you did.
That’s what’s called “the higher fool” theory of financial investment. Contrast that to a well-managed organization, which increases its worth over time by growing the profitability and cash flow of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be noted that a currency requires stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the investment neighborhood have actually encouraged prospective investors to avoid them. Of particular note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable way of transmitting money and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a lot of money? Just because they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair cost is for goods. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For instance, while Bitcoin traded at near to $20,000 in December 2017, its worth then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels once again.
This cost volatility produces a quandary. If bitcoins might be worth a lot more in the future, people are less most likely to invest and circulate them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the value next year?