What Is Cryptocurrency? Here’s What You Must 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 protect yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase products and services, but 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 at times driving prices skyward.
Here are seven 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 items and services. Lots of business have actually issued their own currencies, often called tokens, and these can be traded particularly for the great or service that the company provides. Consider them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread across many 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 different cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to multiply, raising money through initial 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 value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current price to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their supporters for a variety of factors. 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, most likely prior to they become more valuable Some fans like the truth that cryptocurrency removes central banks from handling the money supply, considering that in time these banks tend to lower the worth of money via 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 safe and secure than traditional payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-lasting acceptance as a way to move money
4. Are cryptocurrencies an excellent investment?
Cryptocurrencies might go up in worth, however many investors see them as mere speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, 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 value gradually by growing the profitability and capital of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it needs to 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 significant voices in the investment community have actually encouraged prospective financiers to steer clear of them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective way of transmitting cash 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 money? Just because they can send money?” 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 customers can determine what a fair price is for items. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, 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 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, people are less most likely to spend and circulate them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the worth next year?