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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 safeguard yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy products and services, but uses 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 sometimes driving rates 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 items and services. Numerous business have released their own currencies, frequently called tokens, and these can be traded specifically for the good or service that the business provides. Think of them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized innovation spread throughout lots of computer systems that handles and tape-records deals. Part of the appeal of this technology 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 market research site. And cryptocurrencies continue to proliferate, 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 value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their supporters for a range of factors. 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, most likely before they become more valuable Some supporters like the fact that cryptocurrency eliminates reserve banks from managing the cash supply, considering that in time these banks tend to minimize the worth of cash via inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than standard payment systems Some speculators like cryptocurrencies because they’re increasing in worth and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies a great investment?

Cryptocurrencies may go up in value, however numerous financiers see them as simple speculations, not real financial investments. The reason? Much like real currencies, cryptocurrencies produce no cash flow, so for you to benefit, somebody needs to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of financial investment. Contrast that to a well-managed service, which increases its worth with 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 ought to be noted that a currency needs stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the investment community have encouraged potential financiers to avoid them. Of particular note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient way of sending money and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a lot of cash? Even if they can transmit 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 consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For example, 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 again.

This cost volatility creates a conundrum. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and distribute 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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