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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase 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 items 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 at times driving prices skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for items and services. Lots of business have released their own currencies, frequently called tokens, and these can be traded particularly for the good or service that the company supplies. Think about them as you would arcade tokens or gambling establishment chips. You’ll require 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 across lots of computer systems that handles and tape-records deals. Part of the appeal of this innovation is its security.

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

More than 6,700 various cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to proliferate, raising money through preliminary coin offerings, or ICOs. The total 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 inspect the current cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their advocates for a range of reasons. Here are some 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 before they become better Some supporters like the truth that cryptocurrency eliminates reserve banks from handling the money supply, considering that in time these banks tend to decrease the value of cash by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more secure than standard payment systems Some speculators like cryptocurrencies due to the fact that they’re increasing in value and have no interest in the currencies’ long-lasting acceptance as a method to move money

4. Are cryptocurrencies a great investment?

Cryptocurrencies might increase in value, but lots of financiers see them as mere speculations, not real investments. The reason? Similar to real currencies, cryptocurrencies produce no cash flow, so for you to benefit, 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 company, 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 should be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the financial investment neighborhood have encouraged would-be financiers to stay away from them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient method of transferring money and you can do it anonymously and all that. A check is a way of sending money too. Are checks worth a whole lot of money? Just because they can transfer money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be noted that a currency requires stability so that merchants and consumers can identify what a fair rate is for goods. 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 again.

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