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What Is Cryptocurrency? Here’s What You Must Know
Cryptocurrencies let you purchase products 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 journal with strong cryptography to protect online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving costs skyward.

Here are seven things to ask about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for items and services. Many companies have actually provided their own currencies, typically called tokens, and these can be traded particularly for the good or service that the business supplies. Think of them as you would arcade tokens or gambling establishment chips. You’ll require to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread throughout numerous computers that handles and tape-records transactions. Part of the appeal of this innovation is its security.

2. The number of cryptocurrencies are there? What are they worth?

More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to multiply, raising money through preliminary coin offerings, or ICOs. The overall worth 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 examine the current cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans for a variety of factors. 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 better Some supporters like the truth that cryptocurrency eliminates reserve banks from managing the money supply, given that over time these banks tend to reduce the value of cash through inflation Other advocates like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe and secure than standard 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 financial investment?

Cryptocurrencies may increase in worth, but many financiers see them as simple speculations, not real investments. The factor? Much like real currencies, cryptocurrencies generate no capital, 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 investment. Contrast that to a well-managed company, which increases its value with 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 needs to be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the financial investment community have actually recommended would-be financiers to steer clear of them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of transmitting 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? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be noted that a currency needs stability so that merchants and consumers can determine what a reasonable rate is for goods. 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 worth then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.

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

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