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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 protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy goods and services, but utilizes an online ledger with strong cryptography to protect online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for items and services. Numerous business have provided their own currencies, typically 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 excellent or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread across many computer systems that manages and tape-records transactions. 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 openly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to proliferate, raising money through preliminary coin offerings, or ICOs. The overall 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 present cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their fans for a variety of factors. Here are some of the most popular:

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, most likely before they become more valuable Some advocates like the fact that cryptocurrency removes central banks from handling the money supply, since with time these banks tend to lower the value of money through inflation Other fans like the innovation behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more protected than conventional payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-term acceptance as a method to move cash

4. Are cryptocurrencies a great investment?

Cryptocurrencies may increase in worth, but many financiers see them as mere speculations, not real investments. The factor? Just like genuine currencies, cryptocurrencies produce no capital, so for you to benefit, somebody needs 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 business, which increases its worth in time by growing the success and cash flow of the operation.

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.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment neighborhood have actually encouraged potential financiers to avoid them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable method of sending cash and you can do it anonymously and all that. A check is a way of sending money too. Are checks worth a lot of money? Even if they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency requires stability so that merchants and consumers can determine what a reasonable cost is for goods. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For example, while Bitcoin traded at near $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 again.

This price volatility creates a problem. If bitcoins might be worth a lot more in the future, people are less most likely to invest and circulate them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth three times the value next year?

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