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What Is Cryptocurrency? Here’s What You Need to 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 protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy items and services, but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving rates skyward.

Here are seven things to inquire 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 companies have actually provided their own currencies, often called tokens, and these can be traded specifically for the good or service that the company offers. Think of 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 throughout numerous computer systems that handles and tape-records deals. Part of the appeal of this innovation is its security.

2. How many cryptocurrencies exist? What are they worth?

More than 6,700 various 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 overall 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 inspect the current price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a range 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 better Some fans like the fact that cryptocurrency eliminates central banks from handling the cash supply, because in time these banks tend to decrease the value of money via inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than conventional payment systems Some speculators like cryptocurrencies because they’re increasing in value and have no interest in the currencies’ long-lasting acceptance as a way to move cash

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies might increase in worth, however many investors see them as mere speculations, not real investments. The factor? Just like real currencies, cryptocurrencies generate no capital, so for you to profit, somebody 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 organization, which increases its value 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 must be noted that a currency requires stability.” As NerdWallet writers have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have actually advised would-be investors to avoid them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable method of transmitting cash and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a lot of money? Just because they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency requires stability so that merchants and consumers can determine what a reasonable price is for items. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For instance, while Bitcoin traded at near $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 conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth three times the value next year?

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