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What Is Cryptocurrency? Here’s What You Need to 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 used to purchase products and services, but utilizes an online ledger with strong cryptography to secure online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving rates skyward.

Here are seven things to ask about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many business have actually released their own currencies, often called tokens, and these can be traded specifically for the excellent or service that the business offers. Think about them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized technology spread throughout numerous computers that manages and tape-records deals. Part of the appeal of this innovation is its security.

2. How many cryptocurrencies exist? What are they worth?

More than 6,700 various 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 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 current cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, most likely before they become more valuable Some advocates like the reality that cryptocurrency removes reserve banks from managing the cash supply, considering that over time these banks tend to minimize the worth of cash via inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since 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 worth and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies a good investment?

Cryptocurrencies might increase in worth, but many financiers see them as mere speculations, not real investments. The reason? Much like real currencies, cryptocurrencies produce 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 with 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 should be noted that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the investment neighborhood have encouraged prospective investors to stay away from them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely effective method of transmitting cash and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a whole lot of cash? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be kept in mind that a currency requires stability so that merchants and consumers can determine what a fair rate is for items. Bitcoin and other cryptocurrencies have been anything however 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 creates a conundrum. If bitcoins might be worth a lot more in the future, individuals 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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