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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you purchase items 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 purchase goods and services, however uses 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 at times driving costs skyward.

Here are 7 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 products and services. Numerous companies have issued their own currencies, frequently called tokens, and these can be traded specifically for the great or service that the business offers. Think of them as you would arcade tokens or casino chips. You’ll need 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 lots of computer systems that handles and records transactions. Part of the appeal of this innovation is its security.

2. How many 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 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing price to buy 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, probably before they end up being better Some advocates like the truth that cryptocurrency eliminates central banks from managing the cash supply, given that gradually these banks tend to minimize the worth of money by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than standard payment systems Some speculators like cryptocurrencies because they’re going up in worth and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies an excellent investment?

Cryptocurrencies might go up in value, however lots of investors see them as simple speculations, not real financial investments. The reason? Just 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 business, which increases its worth over time by growing the profitability and capital of the operation.

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.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have actually advised potential financiers to stay away from them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient way of transferring cash and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a great deal of cash? Just because they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be kept in mind that a currency needs stability so that merchants and consumers can determine what a fair cost is for products. Bitcoin and other cryptocurrencies have actually 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 price volatility creates a quandary. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and circulate them today, making them less practical as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

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