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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 safeguard yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but utilizes 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 rates skyward.

Here are 7 things to ask about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for products and services. Many business have provided their own currencies, often called tokens, and these can be traded specifically for the excellent 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 great or service.

Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread across lots of computer systems that handles and tape-records transactions. Part of the appeal of this innovation is its security.

2. The number of cryptocurrencies are there? What are they worth?

More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to proliferate, raising money through preliminary 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 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 appeal to their fans 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 prior to they become better Some advocates like the reality that cryptocurrency removes reserve banks from managing the cash supply, because over time these banks tend to lower the worth of cash through inflation Other advocates like the technology behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more secure than traditional payment systems Some speculators like cryptocurrencies because they’re increasing in value and have no interest in the currencies’ long-term approval as a way to move money

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies might increase in value, however numerous investors see them as mere speculations, not real investments. The reason? Similar to real currencies, cryptocurrencies generate no capital, so for you to profit, someone has 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 business, which increases its value with 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 ought to be noted that a currency requires stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment community have actually recommended would-be financiers to avoid them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable method of transmitting money and you can do it anonymously and all that. A check is a method of sending money too. Are checks worth a great deal of cash? Just because they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency needs stability so that merchants and customers can identify what a fair cost is for goods. Bitcoin and other cryptocurrencies have been anything but 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 once again.

This cost volatility develops a quandary. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the value next year?

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