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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 used to purchase items and services, however utilizes an online ledger with strong cryptography to secure online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving costs 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 goods and services. Lots of business have actually issued their own currencies, often called tokens, and these can be traded particularly for the great or service that the business provides. Consider them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread across numerous computers that manages and tapes 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 publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate, raising money through initial 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 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 appeal to their supporters for a range of reasons. Here are some of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, probably before they become better Some advocates like the fact that cryptocurrency gets rid of central banks from handling the money supply, considering that over time these banks tend to decrease the worth of money via inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe than traditional payment systems Some speculators like cryptocurrencies since they’re increasing in worth and have no interest in the currencies’ long-term acceptance as a way to move cash

4. Are cryptocurrencies a great investment?

Cryptocurrencies may increase in worth, however many investors see them as mere speculations, not real financial investments. The reason? Much like genuine currencies, cryptocurrencies create no capital, so for you to benefit, someone 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 company, which increases its value over time by growing the success and capital 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 kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have recommended would-be investors to steer clear of them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable way of transferring money and you can do it anonymously and all that. A check is a method of sending cash too. Are checks worth a great deal of money? Even if they can transfer money?” 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 fair cost is for products. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For instance, 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 once again.

This cost volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and circulate them today, making them less practical as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?

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