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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you purchase items and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to secure yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy products and services, however uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving costs skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for products and services. Numerous business have released their own currencies, typically called tokens, and these can be traded particularly for the great or service that the company supplies. Consider them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread across many computers that manages and tape-records 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 various cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research site. 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 total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing price to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

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

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become better Some supporters like the truth that cryptocurrency eliminates central banks from managing the money supply, since over time these banks tend to minimize the value of money via inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than conventional payment systems Some speculators like cryptocurrencies because they’re going up in worth and have no interest in the currencies’ long-term approval as a method to move cash

4. Are cryptocurrencies a good investment?

Cryptocurrencies may go up in value, but many financiers see them as mere speculations, not real investments. The factor? Much like real currencies, cryptocurrencies produce no capital, so for you to benefit, someone has 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 company, which increases its value in 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 needs to be noted that a currency requires stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment community have actually advised potential investors to avoid them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient way of transmitting money 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 transfer money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency needs stability so that merchants and consumers can determine what a reasonable rate 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 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 creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?

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