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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy goods 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 purchase products and services, but uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving prices skyward.

Here are seven things to ask about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Numerous companies have actually issued their own currencies, often called tokens, and these can be traded specifically for the great or service that the company supplies. Consider them as you would arcade tokens or gambling establishment chips. You’ll require to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across numerous computers that manages and tapes transactions. Part of the appeal of this technology is its security.

2. The number of cryptocurrencies exist? What are they worth?

More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to multiply, 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 overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans for a variety 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 purchase them now, most likely before they end up being better Some fans like the fact that cryptocurrency eliminates central banks from handling the money supply, considering that in time these banks tend to reduce the worth of money through inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe than standard 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 approval as a method to move cash

4. Are cryptocurrencies a great investment?

Cryptocurrencies might go up in value, however many investors see them as simple speculations, not real financial investments. The factor? Similar to real currencies, cryptocurrencies create no capital, so for you to benefit, someone has to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed company, which increases its worth gradually by growing the profitability and capital of the operation.

For those who see cryptocurrencies such as bitcoin as the currency of the future, it should be kept in mind that a currency requires stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment community have actually recommended potential financiers to steer clear of them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of transferring money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a great deal of cash? Even if they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be kept in mind that a currency requires stability so that merchants and consumers can identify what a fair rate is for items. 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 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 problem. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and circulate them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth three times the worth next year?

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