What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy 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 used to purchase products and services, but utilizes an online journal with strong cryptography to secure 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 keep an eye out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for items and services. Many business have released their own currencies, frequently called tokens, and these can be traded specifically for the great or service that the company offers. Consider them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread throughout many computers that handles and records deals. Part of the appeal of this technology is its security.
2. The number of cryptocurrencies are there? What are they worth?
More than 6,700 different cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research website. 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the current rate to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their fans for a range of factors. 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 end up being better Some fans like the reality that cryptocurrency removes reserve banks from handling the cash supply, because in time 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 protected than conventional payment systems Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term approval as a method to move money
4. Are cryptocurrencies a great financial investment?
Cryptocurrencies may go up in value, however many investors see them as simple speculations, not real investments. The reason? Similar to real currencies, cryptocurrencies generate no capital, so for you to profit, 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 company, which increases its value in 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 ought to be kept in mind that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment community have actually recommended would-be financiers to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable way of sending money and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a great deal 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 customers can determine what a fair cost is for goods. Bitcoin and other cryptocurrencies have 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. By December 2020, it was trading at record levels again.
This rate volatility produces 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 viable as a currency. Why spend a bitcoin when it could be worth 3 times the worth next year?