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 secure yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase products and services, but utilizes an online ledger with strong cryptography to protect online transactions. Much of the interest in these unregulated 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 type of payment that can be exchanged online for products and services. Many business have actually released their own currencies, typically called tokens, and these can be traded specifically for the great or service that the business offers. Consider them as you would arcade tokens or casino chips. You’ll require to exchange genuine currency for the cryptocurrency to access the excellent or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread across many computers that manages and 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 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 overall value 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 cost to buy Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their fans for a variety of reasons. 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, probably before they become more valuable Some advocates like the truth that cryptocurrency removes central banks from handling the cash supply, given that with time these banks tend to reduce the worth of cash by means of inflation Other advocates like the technology 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 way to move money
4. Are cryptocurrencies a great investment?
Cryptocurrencies might increase in value, however lots of investors see them as simple speculations, not real investments. The reason? Similar to real currencies, cryptocurrencies produce no capital, 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 investment. Contrast that to a well-managed organization, which increases its worth 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 noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment neighborhood have actually encouraged potential financiers to stay away from them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of transferring cash and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a lot of money? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be kept in mind that a currency requires stability so that merchants and consumers can determine what a fair cost is for products. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. 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 on. By December 2020, it was trading at record levels once again.
This rate volatility produces a problem. If bitcoins might be worth a lot more in the future, people are less likely to invest and circulate them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?