What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you purchase products and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to secure yourself.
Lots of or all of the products featured here are from our partners who compensate us. This might influence which items we write about and where and how the item appears on a page. However, this does not influence our assessments. Our viewpoints are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase products and services, but uses an online ledger with strong cryptography to secure online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving rates 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 items and services. Numerous companies have actually issued their own currencies, typically called tokens, and these can be traded particularly for the great or service that the company offers. Think of them as you would arcade tokens or casino chips. You’ll require to exchange genuine currency for the cryptocurrency to access the good or service.
Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread across many computer systems that manages and tape-records deals. Part of the appeal of this technology 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 site. And cryptocurrencies continue to multiply, raising money through preliminary coin offerings, or ICOs. The overall 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 examine the current cost to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their supporters for a variety of reasons. Here are a few of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they end up being better Some fans like the reality that cryptocurrency eliminates reserve banks from managing the money supply, considering that with time these banks tend to lower the value of cash through inflation Other fans like the technology behind cryptocurrencies, the blockchain, since 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 money
4. Are cryptocurrencies a good investment?
Cryptocurrencies might go up in value, however many investors see them as simple speculations, not real investments. The reason? Similar to genuine currencies, cryptocurrencies produce no capital, so for you to profit, somebody needs to pay more for the currency than you did.
That’s what’s called “the higher fool” theory of financial investment. Contrast that to a well-managed organization, which increases its worth in 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 ought to be kept in mind that a currency needs stability.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have actually encouraged prospective financiers to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of sending money and you can do it anonymously and all that. A check is a way of transferring money too. Are checks worth a great deal of money? Even if they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency requires stability so that merchants and consumers can determine what a reasonable rate is for items. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For instance, while Bitcoin traded at near $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 conundrum. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and distribute them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth three times the value next year?