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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy products 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 buy products and services, but uses 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 prices skyward.

Here are seven things to ask about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for goods and services. Lots of companies have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the good or service that the company offers. 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 across numerous computer systems that handles and records deals. 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 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to multiply, raising money through preliminary 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

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

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, most likely prior to they become more valuable Some fans like the reality that cryptocurrency eliminates reserve banks from managing the cash supply, since with time these banks tend to minimize the worth of cash by means of inflation Other supporters 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 standard 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 acceptance as a way to move money

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies might increase in value, however many financiers see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies produce no capital, 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 value over time by growing the profitability and capital of the operation.

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.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment neighborhood have recommended would-be investors to stay away from them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective method of transferring 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 money? Even if they can send money?” 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 consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. While Bitcoin traded at close to $20,000 in December 2017, its value 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 develops a dilemma. If bitcoins might be worth a lot more in the future, people are less most likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the worth next year?

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