What Is Cryptocurrency? Here’s What You Should 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 used to buy goods and services, but uses an online ledger with strong cryptography to protect online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving costs skyward.
Here are 7 things to ask about cryptocurrency, and what to watch out for.
1. What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for products and services. Numerous business have provided their own currencies, often called tokens, and these can be traded particularly for the great or service that the company provides. Think of 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 using an innovation called blockchain. Blockchain is a decentralized technology spread across lots of computers that manages and tape-records deals. Part of the appeal of this innovation is its security.
2. The number of cryptocurrencies exist? 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 preliminary 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the present cost to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their supporters for a range of reasons. Here are some of the most popular:
Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, presumably before they end up being better Some advocates like the fact that cryptocurrency removes reserve banks from managing the money supply, since gradually these banks tend to reduce the value of money by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe than conventional payment systems Some speculators like cryptocurrencies since they’re going up in value and have no interest in the currencies’ long-term approval as a way to move cash
4. Are cryptocurrencies a good financial investment?
Cryptocurrencies may increase in worth, but many investors see them as mere 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 financial investment. Contrast that to a well-managed service, which increases its value in time by growing the success and capital of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it must be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the financial investment neighborhood have actually encouraged prospective financiers to stay away from them. Of specific note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of transmitting cash and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a whole lot of money? Even if they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency requires stability so that merchants and consumers can determine what a reasonable price is for items. 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 rate volatility develops a quandary. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and flow them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?