What Is Cryptocurrency? Here’s What You Must 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 safeguard yourself.
Lots of or all of the items included here are from our partners who compensate us. This might affect which items we write about and where and how the item appears on a page. This does not influence our assessments. Our viewpoints are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy goods and services, but uses an online journal 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 products and services. Many companies have issued their own currencies, typically called tokens, and these can be traded particularly for the good or service that the company supplies. Consider them as you would arcade tokens or casino 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 computers that manages and tape-records transactions. 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 website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The total worth 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 present price to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their advocates for a variety of factors. 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, presumably prior to they become more valuable Some advocates like the truth that cryptocurrency gets rid of central banks from managing the cash supply, given that with time these banks tend to decrease the worth of money through inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than traditional 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 go up in worth, but many investors see them as mere speculations, not real financial investments. The reason? Similar to real currencies, cryptocurrencies produce no cash flow, so for you to profit, someone needs to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of financial investment. Contrast that to a well-managed company, which increases its worth 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 writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have recommended prospective investors to stay away from them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely effective way of transmitting money and you can do it anonymously and all that. A check is a way of sending money too. Are checks worth a lot of money? Even if they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be kept in mind that a currency requires stability so that merchants and consumers can determine what a reasonable cost is for goods. 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 worth then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels once again.
This cost volatility produces a dilemma. If bitcoins might be worth a lot more in the future, people are less likely to invest and distribute them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?