What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy 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 utilized to purchase products and services, but uses an online journal with strong cryptography to protect online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times 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 items and services. Numerous business have released their own currencies, frequently called tokens, and these can be traded particularly for the great 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 using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout many computers that manages and 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 various cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research site. 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current cost to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their fans for a variety of factors. 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, presumably before they end up being better Some advocates like the reality that cryptocurrency gets rid of central banks from managing the cash supply, given that over time these banks tend to reduce the value of cash through inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than standard payment systems Some speculators like cryptocurrencies due to the fact that they’re going up in value and have no interest in the currencies’ long-term approval as a way to move money
4. Are cryptocurrencies a great financial investment?
Cryptocurrencies might increase in worth, but numerous investors see them as simple speculations, not real financial investments. The reason? Just like genuine currencies, cryptocurrencies produce no capital, so for you to profit, somebody has 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 company, which increases its value in 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 must be kept in mind that a currency requires stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment neighborhood have actually recommended would-be financiers to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of transmitting cash and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a lot of cash? Just because they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency requires stability so that merchants and customers can determine what a reasonable cost 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 creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?