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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy items 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 purchase 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 sometimes driving prices skyward.

Here are 7 things to inquire 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 items and services. Many companies have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the good or service that the company supplies. Think about them as you would arcade tokens or casino chips. You’ll require 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 many computers that handles and records deals. 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 openly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall 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 existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their fans for a variety 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 buy them now, probably prior to they become more valuable Some fans like the truth that cryptocurrency removes reserve banks from handling the money supply, because over time these banks tend to minimize the worth of money 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 protected than standard payment systems Some speculators like cryptocurrencies since they’re increasing in worth and have no interest in the currencies’ long-term approval as a way to move money

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies might go up in value, however numerous investors see them as simple speculations, not real investments. The factor? Similar to genuine currencies, cryptocurrencies generate no capital, so for you to profit, somebody has to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed organization, 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 must be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the investment community have recommended prospective financiers to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective method of sending cash and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a great deal of cash? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency requires stability so that merchants and customers can determine what a reasonable rate is for items. Bitcoin and other cryptocurrencies have 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. By December 2020, it was trading at record levels again.

This rate volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less most likely to spend and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?

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