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

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but utilizes an online journal with strong cryptography to secure online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving rates skyward.

Here are 7 things to inquire about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for products and services. Many companies have actually provided their own currencies, often called tokens, and these can be traded specifically for the good or service that the company offers. Think of them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the great or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread throughout lots of computer systems that manages and tapes transactions. Part of the appeal of this technology is its security.

2. How many 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 initial 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 overall worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the present cost to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their fans for a range 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, most likely prior to they become better Some supporters like the reality that cryptocurrency gets rid of central banks from managing the money supply, because with time these banks tend to decrease the worth of cash via inflation Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more protected than standard 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 cash

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may increase in value, but many financiers see them as simple speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies generate no cash flow, so for you to benefit, someone has 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 worth with 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 needs to be noted that a currency needs stability.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment neighborhood have advised would-be investors to stay away from them. Of particular note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of sending money and you can do it anonymously and all that. A check is a way of sending cash too. Are checks worth a great deal of cash? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be kept in mind that a currency requires stability so that merchants and consumers can identify what a fair cost is for items. Bitcoin and other cryptocurrencies have actually 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 price volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals 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 three times the worth next year?

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