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 secure yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to buy products and services, but utilizes an online ledger with strong cryptography to secure online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving prices skyward.
Here are 7 things to ask about cryptocurrency, and what to look out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for products and services. Lots of companies have released their own currencies, frequently called tokens, and these can be traded specifically for the good or service that the business supplies. Think of them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the excellent or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread throughout numerous computer systems that handles and tape-records transactions. Part of the appeal of this innovation is its security.
2. How many 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 multiply, raising money through preliminary 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 total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the present rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies attract their supporters 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 buy them now, presumably before they become more valuable Some fans like the truth that cryptocurrency removes central banks from handling the cash supply, since over time these banks tend to minimize the value of cash by means of inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than traditional 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-lasting approval as a method to move money
4. Are cryptocurrencies a great financial investment?
Cryptocurrencies might go up in value, however many financiers see them as simple speculations, not real financial investments. The reason? Similar to genuine currencies, cryptocurrencies create no cash flow, 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 financial 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 should 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 noteworthy voices in the financial investment neighborhood have actually encouraged potential investors to stay away from them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable method of transferring money and you can do it anonymously and all that. A check is a way of transferring money too. Are checks worth a lot of money? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency needs stability so that merchants and consumers can determine what a fair rate 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 value then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels again.
This rate volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the value next year?