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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 secure yourself.

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

Here are 7 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, often called tokens, and these can be traded particularly for the good or service that the business supplies. Think of them as you would arcade tokens or gambling establishment chips. You’ll require to exchange genuine currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread across numerous computers that manages and records transactions. Part of the appeal of this technology is its security.

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

More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall worth of all cryptocurrencies on Dec. 18, 2020, was more than $645.7 billion, according to CoinMarketCap, and the total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their supporters for a range of factors. Here are a few of the most popular:

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, most likely prior to they become more valuable Some supporters like the reality that cryptocurrency eliminates central banks from handling the cash supply, because over time these banks tend to lower the worth of money through inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than standard payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-term approval as a way to move money

4. Are cryptocurrencies an excellent investment?

Cryptocurrencies may increase in value, however many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies create no cash flow, 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 investment. Contrast that to a well-managed business, which increases its worth 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 must be noted that a currency needs stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the investment community have recommended prospective investors to stay away from them. Of particular note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable method of transmitting cash and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a lot of money? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency needs stability so that merchants and consumers can determine what a reasonable price is for products. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For instance, while Bitcoin traded at near $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels once again.

This rate volatility produces a dilemma. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the worth next year?

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