What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase products and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to protect yourself.
Numerous or all of the products included here are from our partners who compensate us. This may influence which products we blog about and where and how the product appears on a page. However, this does not affect our assessments. Our viewpoints are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy items and services, but utilizes 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 sometimes driving prices 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 goods and services. Many companies have released their own currencies, often called tokens, and these can be traded specifically for the great or service that the business supplies. Think of them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.
Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread throughout numerous computer systems that handles and tape-records deals. 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 website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall 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 inspect the current rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety 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 purchase them now, most likely prior to they become more valuable Some advocates like the reality that cryptocurrency gets rid of central banks from managing the money supply, since gradually these banks tend to decrease the worth of money by means of inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than standard payment systems Some speculators like cryptocurrencies since they’re increasing in worth and have no interest in the currencies’ long-lasting acceptance as a way to move cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies may increase in value, however lots of financiers see them as simple speculations, not real financial investments. The reason? Just like real currencies, cryptocurrencies produce no cash flow, so for you to profit, someone has 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 service, which increases its value in 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 ought to be noted that a currency needs stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have encouraged would-be financiers to avoid them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient method of transmitting money and you can do it anonymously and all that. A check is a way of sending cash too. Are checks worth a whole lot of money? Even if they can transfer money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency needs stability so that merchants and consumers can identify what a reasonable rate is for products. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For example, 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 cost volatility produces a problem. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and distribute them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the worth next year?