What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you purchase 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 utilized to buy items and services, however uses an online journal with strong cryptography to protect online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving rates skyward.
Here are 7 things to inquire about cryptocurrency, and what to keep an eye out for.
1. What is cryptocurrency?
Cryptocurrency is a kind of payment that can be exchanged online for goods and services. Many business have actually provided their own currencies, frequently called tokens, and these can be traded particularly for the great or service that the business supplies. Consider them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized technology spread across lots of computers that handles and records deals. Part of the appeal of this technology is its security.
2. How many cryptocurrencies are there? What are they worth?
More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to multiply, raising money through initial 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 overall worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing rate to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their fans for a variety of reasons. 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, probably before they become more valuable Some supporters like the fact that cryptocurrency eliminates central banks from handling the money supply, considering that gradually these banks tend to decrease the value of cash through inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than conventional payment systems Some speculators like cryptocurrencies due to the fact that they’re going up in value and have no interest in the currencies’ long-term approval as a way to move money
4. Are cryptocurrencies a good investment?
Cryptocurrencies may go up in worth, but lots of investors see them as mere speculations, not real financial investments. The factor? Similar to genuine currencies, cryptocurrencies generate 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 value over time by growing the success and capital of the operation.
For those who see cryptocurrencies such as bitcoin as the currency of the future, it must be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have advised would-be financiers to avoid them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable method of sending money and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a whole lot of money? Just because they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be kept in mind that a currency requires stability so that merchants and customers can identify what a fair cost is for goods. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. 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. By December 2020, it was trading at record levels once again.
This cost volatility creates a quandary. 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 invest a bitcoin when it could be worth 3 times the worth next year?