What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase products 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 goods and services, however uses an online ledger with strong cryptography to protect online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving rates skyward.
Here are seven things to inquire 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 goods and services. Numerous business have released their own currencies, often called tokens, and these can be traded particularly for the great or service that the company supplies. Think about them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.
Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread throughout many computer systems that handles and records deals. Part of the appeal of this innovation is its security.
2. The number of cryptocurrencies exist? What are they worth?
More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research website. 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their advocates for a range of reasons. Here are a few of the most popular:
Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, most likely prior to they end up being more valuable Some advocates like the reality that cryptocurrency eliminates reserve banks from handling the cash supply, considering that over time these banks tend to reduce the worth of money through inflation Other fans like the technology 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 due to the fact that they’re increasing in value and have no interest in the currencies’ long-term acceptance as a way to move cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies might increase in worth, but numerous investors see them as mere speculations, not real investments. The factor? Much like genuine currencies, cryptocurrencies generate no capital, so for you to benefit, someone has 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 gradually 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 needs to be noted that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment community have encouraged prospective financiers to steer clear of them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable method of transmitting cash and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a lot of money? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and customers can identify what a reasonable price is for items. 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 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 price volatility develops a quandary. If bitcoins might be worth a lot more in the future, people are less likely to invest and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?