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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy products and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to safeguard yourself.

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

Here are 7 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 goods and services. Many companies have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the excellent or service that the business provides. 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 excellent or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that handles and tape-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 openly, according to CoinMarketCap.com, a marketing research site. 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 overall 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 interest their advocates for a range 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 purchase them now, probably before they become more valuable Some fans like the reality that cryptocurrency removes reserve banks from handling the money supply, considering that in time these banks tend to lower the value of money through inflation Other supporters like the technology 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 because they’re increasing in value and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may go up in worth, however numerous investors see them as simple speculations, not real financial investments. The factor? Much 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 organization, which increases its worth 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 kept in mind that a currency requires stability.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have actually encouraged potential financiers to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective 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 whole lot of cash? Even if they can transfer 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 consumers can identify what a reasonable rate is for products. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. While Bitcoin traded at close to $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 develops a quandary. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend 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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