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What Is Cryptocurrency? Here’s What You Need to 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 protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy 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 prices skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for items and services. Lots of companies have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the great or service that the business supplies. Consider them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread across numerous computers that manages and records deals. 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 multiply, raising money through initial coin offerings, or ICOs. The total value 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 check the current price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their fans for a range 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 buy them now, most likely prior to they end up being more valuable Some advocates like the truth that cryptocurrency gets rid of central banks from managing the money supply, because over time these banks tend to decrease 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 secure than conventional payment systems Some speculators like cryptocurrencies because they’re increasing in value and have no interest in the currencies’ long-lasting acceptance as a method to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies might go up in value, however numerous financiers see them as simple speculations, not real investments. The factor? Just like genuine currencies, cryptocurrencies generate no cash flow, so for you to benefit, 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 business, which increases its value over time 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 needs to be noted that a currency requires stability.” As NerdWallet writers have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment community have encouraged would-be investors to stay away from them. Of particular note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of transmitting cash and you can do it anonymously and all that. A check is a way of sending cash too. Are checks worth a lot of money? Even if they can send money?” 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 so that merchants and consumers can determine what a fair price is for products. Bitcoin and other cryptocurrencies have 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. 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 most likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the worth next year?

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