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What Is Cryptocurrency? Here’s What You Must Know
Cryptocurrencies let you buy items and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to protect 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 unregulated currencies is to trade for profit, with speculators sometimes driving costs skyward.

Here are seven things to inquire about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for goods and services. Lots of companies have actually provided their own currencies, typically called tokens, and these can be traded particularly for the good or service that the company supplies. Think of them as you would arcade tokens or casino chips. You’ll require to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout lots of computers that handles and tapes transactions. Part of the appeal of this technology is its security.

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

More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to multiply, 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 overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the present price to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their advocates 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, probably prior to they become better Some supporters like the reality that cryptocurrency removes reserve banks from managing the cash supply, because with time these banks tend to decrease the worth of cash via inflation Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than standard payment systems Some speculators like cryptocurrencies since they’re going up in worth and have no interest in the currencies’ long-lasting approval as a way to move money

4. Are cryptocurrencies a good investment?

Cryptocurrencies might increase in value, but many investors see them as simple speculations, not real financial investments. The reason? Much like real currencies, cryptocurrencies create no cash flow, so for you to profit, 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 gradually 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 should be kept in mind that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the investment community have advised prospective financiers to stay away from them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable way of transmitting cash and you can do it anonymously and all that. A check is a way of sending money too. Are checks worth a whole lot of cash? Just because they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency needs stability so that merchants and consumers can determine what a fair 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 once again.

This price volatility creates a problem. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and circulate them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?

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