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What Is Cryptocurrency? Here’s What You Must 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 items and services, however uses an online ledger with strong cryptography to secure online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving costs skyward.

Here are 7 things to ask about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for goods and services. Lots of companies have released their own currencies, frequently called tokens, and these can be traded particularly for the excellent or service that the company provides. Think of them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread throughout numerous computer systems that manages and tape-records transactions. Part of the appeal of this technology is its security.

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

More than 6,700 different cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall worth 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 inspect the existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans 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, presumably prior to they become more valuable Some supporters like the reality that cryptocurrency eliminates reserve banks from handling the cash supply, given that gradually these banks tend to decrease the value of cash through inflation Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe and secure than standard payment systems Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-lasting acceptance as a way to move cash

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may increase in value, but lots of financiers see them as mere speculations, not real investments. The reason? Similar to genuine currencies, cryptocurrencies generate no capital, so for you to profit, 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 company, which increases its value 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 should be noted that a currency needs stability.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have encouraged would-be investors to steer clear of them. Of particular note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really effective way of sending money and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a great deal of money? Even if they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be noted that a currency needs stability so that merchants and consumers can determine what a reasonable rate is for items. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at near $20,000 in December 2017, its worth then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels again.

This rate volatility creates a dilemma. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

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