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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy goods 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 utilized to buy items and services, but 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 sometimes driving prices skyward.

Here are 7 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 products and services. Many business have actually released their own currencies, frequently called tokens, and these can be traded particularly for the great or service that the company provides. Think about them as you would arcade tokens or gambling establishment chips. You’ll require to exchange genuine currency for the cryptocurrency to access the great or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread throughout numerous computers that manages and tapes deals. 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 openly, according to CoinMarketCap.com, a market research site. 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 cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their advocates for a variety of factors. Here are a few of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably prior to they become better Some fans like the truth that cryptocurrency eliminates central banks from managing the money supply, considering that over time these banks tend to lower the worth of cash through inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more protected than conventional payment systems Some speculators like cryptocurrencies because 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 financial investment?

Cryptocurrencies may increase in worth, but lots of 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 benefit, someone needs to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed organization, which increases its worth over time 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 authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the investment community have advised potential investors to stay away from them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable way of transferring 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? Even if they can transfer money?” 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 fair rate is for goods. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For example, 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. By December 2020, it was trading at record levels again.

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

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