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What Is Cryptocurrency? Here’s What You Need to 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 secure yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to purchase items and services, however uses an online ledger with strong cryptography to protect online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes 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 kind of payment that can be exchanged online for items and services. Lots of business have issued their own currencies, typically called tokens, and these can be traded specifically for the good or service that the company supplies. Think about them as you would arcade tokens or casino chips. You’ll require to exchange genuine currency for the cryptocurrency to access the great or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized innovation spread throughout many computers that manages and records deals. Part of the appeal of this technology is its security.

2. How many cryptocurrencies exist? What are they worth?

More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to proliferate, raising money through initial 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 total 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 appeal to their supporters 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, most likely prior to they become better Some supporters like the truth that cryptocurrency removes central banks from handling the money supply, considering that over time these banks tend to lower the value of money through inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe than traditional payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-term acceptance as a way to move money

4. Are cryptocurrencies a great investment?

Cryptocurrencies might increase in worth, but many investors see them as mere speculations, not real investments. The reason? Much like genuine currencies, cryptocurrencies produce 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 higher fool” theory of investment. Contrast that to a well-managed organization, 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 ought to be noted that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the financial investment community have actually encouraged would-be financiers to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient 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 whole lot of money? Even if they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be noted that a currency requires stability so that merchants and customers can determine what a reasonable cost is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at near to $20,000 in December 2017, its worth 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 dilemma. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and distribute them today, making them less viable as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?

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