What Is Cryptocurrency? Here’s What You Need to 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 protect yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase goods and services, but utilizes an online ledger with strong cryptography to protect online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving prices skyward.
Here are 7 things to ask about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a kind of payment that can be exchanged online for goods and services. Lots of companies have provided their own currencies, often called tokens, and these can be traded particularly for the great or service that the business supplies. 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 using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout numerous computers that handles 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 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to proliferate, 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 check the existing rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract 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, presumably prior to they become better Some supporters like the reality that cryptocurrency removes reserve banks from managing the money supply, because gradually these banks tend to minimize the value of cash by means of 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 protected 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 acceptance as a method to move money
4. Are cryptocurrencies a good investment?
Cryptocurrencies might increase in value, but numerous financiers see them as simple speculations, not real investments. The factor? Much like real currencies, cryptocurrencies generate no cash flow, so for you to benefit, 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 over 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 ought to be kept in mind that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have encouraged prospective investors to stay away from them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective method of transferring money and you can do it anonymously and all that. A check is a method of sending cash too. Are checks worth a lot of cash? Just because they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency needs stability so that merchants and customers can identify what a reasonable cost is for products. Bitcoin and other cryptocurrencies have been anything however 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 rate volatility develops a problem. If bitcoins might be worth a lot more in the future, people are less likely to invest and flow them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the worth next year?