What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy products and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to safeguard yourself.
Lots of or all of the products featured here are from our partners who compensate us. This may affect which items we discuss and where and how the item appears on a page. However, this does not influence our examinations. Our viewpoints are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase goods and services, however utilizes an online journal with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving costs skyward.
Here are 7 things to ask about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a kind of payment that can be exchanged online for goods and services. Many business have issued their own currencies, typically called tokens, and these can be traded particularly for the great or service that the business offers. Consider them as you would arcade tokens or gambling establishment chips. You’ll need to exchange genuine currency for the cryptocurrency to access the excellent or service.
Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized technology spread across many computer systems that manages and records transactions. Part of the appeal of this technology is its security.
2. The number of cryptocurrencies exist? What are they worth?
More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing 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 existing rate to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their fans for a variety of factors. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably before they end up being more valuable Some advocates like the fact that cryptocurrency removes central banks from managing the money supply, since in time these banks tend to lower the worth of cash through inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more protected than traditional payment systems Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a method to move cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies might go up in value, but many investors see them as mere speculations, not real financial investments. The reason? Similar to real currencies, cryptocurrencies create no cash flow, so for you to profit, someone needs to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of financial investment. Contrast that to a well-managed organization, 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 needs to be noted that a currency requires stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have recommended potential investors to avoid them. Of specific note, famous investor 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 money too. Are checks worth a whole lot of cash? Just because they can send money?” 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 cost is for goods. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. While Bitcoin traded at close 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 cost volatility develops a conundrum. 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 feasible as a currency. Why spend a bitcoin when it could be worth three times the worth next year?