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.
Lots of or all of the products featured here are from our partners who compensate us. This might affect which products we write about and where and how the product appears on a page. This does not influence our evaluations. Our opinions are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be used to buy items and services, however uses an online ledger with strong cryptography to secure online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving rates skyward.
Here are 7 things to ask about cryptocurrency, and what to watch out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for products and services. Lots of business have actually released their own currencies, often 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 casino chips. You’ll require to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread throughout numerous 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 marketing research website. 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 total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing price to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their advocates for a range 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 become better Some fans like the truth that cryptocurrency eliminates reserve banks from handling the money supply, given that in time these banks tend to reduce the worth of money via 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 conventional 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 approval as a way to move cash
4. Are cryptocurrencies an excellent investment?
Cryptocurrencies may go up in worth, but lots of financiers see them as simple speculations, not real investments. The factor? Just like real currencies, cryptocurrencies create 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 company, which increases its value 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 requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment community have encouraged potential financiers to avoid them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient way of transferring cash and you can do it anonymously and all that. A check is a method of transmitting money too. Are checks worth a great deal of money? Just because they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency requires stability so that merchants and consumers can determine what a fair price is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at near $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 once again.
This price volatility creates a quandary. If bitcoins might be worth a lot more in the future, people are less most likely to spend and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?