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What Is Cryptocurrency? Here’s What You Ought to Know
Cryptocurrencies let you purchase goods and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to secure yourself.

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

Here are 7 things to ask 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 released their own currencies, often 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 excellent or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread throughout many computer systems that manages 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 market research site. And cryptocurrencies continue to multiply, 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 overall worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their advocates for a range of reasons. Here are a few 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 fans like the fact that cryptocurrency removes reserve banks from managing the cash supply, because with time these banks tend to reduce the value of cash through inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than traditional payment systems Some speculators like cryptocurrencies due to the fact that they’re increasing in worth and have no interest in the currencies’ long-term acceptance as a way to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may increase in value, but numerous investors see them as mere speculations, not real investments. The reason? Much like genuine currencies, cryptocurrencies create 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 in time by growing the profitability and cash flow of the operation.

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.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment neighborhood have actually encouraged potential investors to steer clear of them. Of particular note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient way of transmitting money and you can do it anonymously and all that. A check is a method of sending cash too. Are checks worth a 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 kept in mind that a currency requires stability so that merchants and customers can determine what a fair price is for items. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For example, while Bitcoin traded at close to $20,000 in December 2017, its worth 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 creates a problem. If bitcoins might be worth a lot more in the future, people are less most likely to invest and circulate them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the value next year?

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