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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 safeguard yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy products and services, however 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 sometimes driving rates skyward.

Here are 7 things to inquire about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for items and services. Numerous companies have provided their own currencies, often called tokens, and these can be traded specifically for the excellent or service that the company supplies. Think about them as you would arcade tokens or casino 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 tape-records transactions. 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 website. And cryptocurrencies continue to proliferate, raising money through preliminary 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 check the existing rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their fans for a range of factors. 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, presumably before they become more valuable Some fans like the fact that cryptocurrency removes central banks from managing the money supply, since gradually these banks tend to reduce the value of cash by means of 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 conventional payment systems Some speculators like cryptocurrencies because they’re increasing in value and have no interest in the currencies’ long-term approval as a method to move cash

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies may increase in worth, however lots of investors see them as simple speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone needs 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 service, which increases its worth with time by growing the profitability 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 authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have actually encouraged prospective investors to stay away from them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective method of transferring money and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a whole lot of cash? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency requires stability so that merchants and customers can identify what a reasonable price is for goods. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For instance, 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. By December 2020, it was trading at record levels again.

This price volatility produces a problem. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and circulate them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the value next year?

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