What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy items and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to safeguard yourself.
Lots of or all of the items included here are from our partners who compensate us. This might influence which items we discuss and where and how the item appears on a page. However, this does not affect our examinations. Our viewpoints are our own.
A cryptocurrency (or “crypto”) is a digital currency that can be used to buy items and services, but uses an online ledger with strong cryptography to secure online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving costs 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 goods and services. Lots of business have issued their own currencies, typically called tokens, and these can be traded particularly for the excellent or service that the business offers. Consider them as you would arcade tokens or casino chips. You’ll need 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 lots of computers that manages and records deals. 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 publicly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to proliferate, raising money through initial 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 total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing rate to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their supporters for a variety of reasons. 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, probably before they become better Some fans like the fact that cryptocurrency gets rid of reserve banks from managing the money supply, considering that with time these banks tend to minimize the worth of cash via inflation Other fans like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than conventional 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 cash
4. Are cryptocurrencies a great investment?
Cryptocurrencies may go up in worth, however numerous financiers see them as simple speculations, not real financial investments. The reason? Just like real currencies, cryptocurrencies produce no capital, so for you to benefit, somebody has to pay more for the currency than you did.
That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed organization, which increases its worth gradually by growing the success and capital 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 needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment neighborhood have encouraged potential financiers to stay away from them. Of particular note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really 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 money? Just because they can transfer cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be noted that a currency requires stability so that merchants and consumers can identify what a fair cost is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, 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. By December 2020, it was trading at record levels once again.
This cost volatility creates a dilemma. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and distribute them today, making them less practical as a currency. Why invest a bitcoin when it could be worth three times the value next year?