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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 protect 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 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 ask about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for goods and services. Lots of companies have actually released their own currencies, frequently called tokens, and these can be traded specifically for the great or service that the business provides. Consider them as you would arcade tokens or casino chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.

Cryptocurrencies work utilizing an innovation called blockchain. Blockchain is a decentralized technology spread throughout lots of computers that handles and tapes deals. Part of the appeal of this technology is its security.

2. How many cryptocurrencies exist? What are they worth?

More than 6,700 different cryptocurrencies are traded publicly, 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the current rate to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their fans for a variety 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 more valuable Some advocates like the fact that cryptocurrency gets rid of reserve banks from handling the cash supply, given that in time these banks tend to lower the value of cash by means of inflation Other advocates like the technology behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more safe and secure than conventional payment systems Some speculators like cryptocurrencies since they’re increasing in worth and have no interest in the currencies’ long-term approval as a method to move cash

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies might go up in value, however many financiers see them as mere speculations, not real investments. The reason? Similar to genuine currencies, cryptocurrencies produce 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 greater fool” theory of investment. Contrast that to a well-managed organization, which increases its worth gradually by growing the success and capital 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 needs stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment community have recommended potential investors to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of transmitting money and you can do it anonymously and all that. A check is a way of transferring money too. Are checks worth a great deal of cash? Just because they can transmit 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 customers can identify what a reasonable price 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 worth 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 creates a problem. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and flow them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the value next year?

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