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

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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase goods and services, however uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving costs skyward.

Here are 7 things to inquire about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for goods and services. Lots of business have provided their own currencies, frequently called tokens, and these can be traded specifically for the great or service that the company provides. Think about them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread across lots of computer systems that handles and tapes transactions. 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 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 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 inspect the existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a variety of factors. Here are a few of the most popular:

Fans 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 fact that cryptocurrency eliminates reserve banks from handling the cash supply, because gradually these banks tend to reduce the value of money through inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more safe than conventional payment systems Some speculators like cryptocurrencies due to the fact that they’re increasing in worth and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies may go up in value, however lots of 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 profit, someone 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 service, which increases its worth gradually 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 must be kept in mind that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the financial investment community have recommended prospective financiers to steer clear of them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of sending cash and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a lot of cash? Even if they can transfer money?” 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 so that merchants and consumers can identify what a fair cost is for products. 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 once again.

This cost volatility develops a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to invest and distribute them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

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