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 utilized to buy items and services, but uses an online ledger with strong cryptography to protect online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving rates skyward.
Here are seven things to ask about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for items and services. Many business have actually issued their own currencies, typically called tokens, and these can be traded specifically for the good or service that the business offers. Consider them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread across lots of computers that handles and tape-records transactions. Part of the appeal of this innovation is its security.
2. The number of cryptocurrencies exist? 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 proliferate, 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current cost to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their supporters for a range of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, probably prior to they end up being more valuable Some supporters like the fact that cryptocurrency eliminates reserve banks from handling the cash supply, because in time these banks tend to reduce the worth of money through inflation Other fans like the technology 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 conventional payment systems Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money
4. Are cryptocurrencies a good investment?
Cryptocurrencies may go up in value, but many financiers see them as mere speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies produce 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 financial investment. Contrast that to a well-managed business, which increases its worth in 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 should be noted that a currency needs stability.” As NerdWallet writers have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have recommended potential financiers to stay away from them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient way of sending cash 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? Even if they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be kept in mind that a currency requires stability so that merchants and consumers can identify what a reasonable cost is for items. Bitcoin and other cryptocurrencies have been anything however 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 creates a dilemma. If bitcoins might be worth a lot more in the future, people are less likely to spend and flow them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the worth next year?