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What Is Cryptocurrency? Here’s What You Should 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 secure yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy goods and services, but utilizes an online ledger with strong cryptography to secure online transactions. 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 inquire about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for products and services. Many business have actually issued their own currencies, typically 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 gambling establishment 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 computer systems that handles and tapes 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 marketing research site. And cryptocurrencies continue to proliferate, 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 overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current cost to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans for a range of reasons. Here are a few of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably before they end up being more valuable Some supporters like the fact that cryptocurrency eliminates central banks from handling the money supply, considering that with time these banks tend to lower the worth of money through inflation Other advocates like the technology behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more secure than traditional payment systems Some speculators like cryptocurrencies since they’re going up in worth and have no interest in the currencies’ long-term approval as a method to move cash

4. Are cryptocurrencies a good investment?

Cryptocurrencies may go up in value, but numerous investors see them as simple speculations, not real financial investments. The reason? Similar to real currencies, cryptocurrencies generate no capital, so for you to benefit, someone 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 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 must be kept in mind that a currency requires stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment community have actually recommended would-be investors to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient way of transmitting cash and you can do it anonymously and all that. A check is a method of sending cash too. Are checks worth a whole lot of cash? Just because they can transfer money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair cost is for items. Bitcoin and other cryptocurrencies have been anything but 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 produces a quandary. If bitcoins might be worth a lot more in the future, people are less likely to invest and distribute them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth 3 times the worth next year?

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