What Is Cryptocurrency? Here’s What You Must 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 used to buy products and services, but utilizes an online ledger with strong cryptography to protect online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving prices skyward.
Here are seven things to ask about cryptocurrency, and what to watch out for.
1. What is cryptocurrency?
Cryptocurrency is a kind of payment that can be exchanged online for products and services. Lots of companies have actually released their own currencies, often called tokens, and these can be traded specifically for the excellent or service that the business 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 good or service.
Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized innovation spread across many computer systems that manages and tape-records 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 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing price to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their fans for a variety 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 buy them now, presumably before they become more valuable Some fans like the fact that cryptocurrency eliminates central banks from handling the cash supply, given that with time these banks tend to decrease the value of cash via inflation Other fans like the technology behind cryptocurrencies, the blockchain, due to the fact that 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-term acceptance as a way to move money
4. Are cryptocurrencies a great financial investment?
Cryptocurrencies may go up in worth, but numerous investors see them as simple speculations, not real financial investments. The factor? Similar to real currencies, cryptocurrencies produce no cash flow, so for you to benefit, somebody 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 business, which increases its worth 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 authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the investment neighborhood have actually advised would-be investors to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable way 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 send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be kept in mind that a currency needs stability so that merchants and customers can determine what a fair rate is for products. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For example, 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 rate volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and distribute them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?