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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 secure yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy products and services, but uses 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 sometimes driving rates skyward.

Here are seven things to inquire about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for items and services. Lots of business have actually released their own currencies, often called tokens, and these can be traded specifically for the good or service that the business supplies. Think about 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 across many computers 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 market research site. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or ICOs. The overall value 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 price to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

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

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably prior to they become better Some advocates like the reality that cryptocurrency removes reserve banks from managing the money supply, because gradually these banks tend to minimize the value of cash by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe than traditional 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 way to move money

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies may go up in value, but lots of financiers see them as mere speculations, not real financial investments. The reason? Just like real currencies, cryptocurrencies produce no cash flow, so for you to benefit, 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 organization, which increases its worth over time by growing the profitability and cash flow of the operation.

For those who see cryptocurrencies such as bitcoin as the currency of the future, it ought 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 community have actually advised would-be financiers to stay away from them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a really effective way of sending cash and you can do it anonymously and all that. A check is a method of transferring cash too. Are checks worth a lot of cash? Even if they can send 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 customers can determine what a reasonable cost is for goods. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For instance, 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 price volatility creates a quandary. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and flow 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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