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What Is Cryptocurrency? Here’s What You Must Know
Cryptocurrencies let you purchase 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 utilized to buy goods and services, but utilizes 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 at times driving rates skyward.

Here are seven things to ask 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. Lots of companies have actually provided their own currencies, typically called tokens, and these can be traded particularly for the excellent or service that the business supplies. 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 a technology called blockchain. Blockchain is a decentralized innovation spread across lots of computer systems that handles and records deals. Part of the appeal of this innovation is its security.

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

More than 6,700 various cryptocurrencies are traded openly, 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the current cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

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

Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably prior to they become better Some fans like the truth that cryptocurrency eliminates reserve banks from managing the money supply, considering that with time these banks tend to reduce the worth of money 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 protected than conventional 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 cash

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies might go up in value, but numerous investors see them as simple speculations, not real financial investments. The reason? Just like real currencies, cryptocurrencies produce 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 investment. Contrast that to a well-managed company, which increases its value with 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 should be noted that a currency requires stability.” As NerdWallet writers have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have recommended would-be financiers to stay away from them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of transferring cash and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a whole lot of money? Just because 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 customers can determine what a reasonable price is for goods. Bitcoin and other cryptocurrencies have 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. By December 2020, it was trading at record levels once again.

This rate volatility produces a conundrum. If bitcoins might be worth a lot more in the future, people are less most likely to spend and distribute them today, making them less practical as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?

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