What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase goods 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 products and services, however utilizes 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 seven 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 items and services. Many companies have issued their own currencies, typically called tokens, and these can be traded specifically for the good or service that the business offers. Consider them as you would arcade tokens or gambling establishment chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.
Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread throughout many computers that handles and records transactions. Part of the appeal of this innovation is its security.
2. The number of cryptocurrencies exist? What are they worth?
More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The total value of all cryptocurrencies on Dec. 18, 2020, was more than $645.7 billion, according to CoinMarketCap, and the total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing cost to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their fans for a variety of reasons. Here are some of the most popular:
Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, probably before they end up being better Some advocates like the truth that cryptocurrency gets rid of reserve banks from handling the money supply, since in time these banks tend to reduce the worth 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 and secure than standard payment systems Some speculators like cryptocurrencies because they’re increasing in worth and have no interest in the currencies’ long-term acceptance as a way to move cash
4. Are cryptocurrencies a good investment?
Cryptocurrencies may increase in worth, however numerous financiers see them as mere speculations, not real financial investments. The factor? Just like genuine currencies, cryptocurrencies produce no capital, 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 organization, which increases its worth gradually 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 should be noted that a currency needs stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment neighborhood have actually encouraged potential financiers to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient method of sending money and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a great deal of cash? Even if 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 determine what a reasonable price is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. While Bitcoin traded at close 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 quandary. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?