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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase goods 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 buy products and services, but utilizes an online journal with strong cryptography to protect online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving rates skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for items and services. Numerous companies have actually issued their own currencies, frequently called tokens, and these can be traded specifically for the excellent or service that the business provides. Think about them as you would arcade tokens or gambling establishment chips. You’ll need to exchange genuine currency for the cryptocurrency to access the excellent or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized innovation spread throughout many computer systems that manages 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 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall worth 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 existing rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their advocates for a range of factors. Here are some of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, probably prior to they end up being more valuable Some advocates like the reality that cryptocurrency gets rid of central banks from managing the money supply, considering that with time these banks tend to decrease the value of money through inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe and secure than standard payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-term acceptance as a method to move money

4. Are cryptocurrencies a good investment?

Cryptocurrencies may go up in value, but lots of financiers see them as simple speculations, not real financial investments. The factor? Just like real currencies, cryptocurrencies produce no cash flow, so for you to benefit, somebody needs to pay more for the currency than you did.

That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over 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 needs to 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 investment community have advised would-be investors to steer clear of them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable method of transferring cash and you can do it anonymously and all that. A check is a method of transmitting money too. Are checks worth a lot of money? Even if they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency needs stability so that merchants and customers can identify what a reasonable rate is for products. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, while Bitcoin traded at near 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 once again.

This cost volatility develops a conundrum. If bitcoins might be worth a lot more in the future, individuals are less most likely to spend and circulate 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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