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 purchase items 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 at times 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 type of payment that can be exchanged online for goods and services. Lots of companies have actually issued their own currencies, often called tokens, and these can be traded specifically for the great or service that the company offers. Think of them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the good or service.
Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized innovation spread across many computers that handles and records transactions. Part of the appeal of this technology 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 website. And cryptocurrencies continue to multiply, raising money through preliminary coin offerings, or ICOs. The total worth 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 rate to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a range 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 buy them now, presumably before they end up being more valuable Some advocates like the reality that cryptocurrency eliminates central banks from handling the money supply, since in time these banks tend to lower the value of cash via inflation Other fans like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure 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 way to move cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies might go up in value, but many financiers see them as mere speculations, not real investments. The reason? Just 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 greater fool” theory of investment. Contrast that to a well-managed service, 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 kept in mind that a currency needs stability.” As NerdWallet writers have actually noted, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment community have encouraged potential investors to stay away from them. Of specific note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable method of sending cash and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a great deal of cash? Just because they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be noted that a currency needs stability so that merchants and customers can determine what a fair rate is for products. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For example, 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 invest and distribute them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?