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What Is Cryptocurrency? Here’s What You Should 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 goods 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 at times driving rates skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for products and services. Lots of business have actually provided their own currencies, often called tokens, and these can be traded specifically for the excellent or service that the business provides. 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 many computer systems 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 various 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 total 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 examine the existing cost to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their supporters for a range 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 purchase them now, most likely prior to they end up being better Some advocates like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to minimize the value of cash through inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more protected than conventional payment systems Some speculators like cryptocurrencies due to the fact that they’re increasing in worth and have no interest in the currencies’ long-lasting acceptance as a way to move money

4. Are cryptocurrencies a good investment?

Cryptocurrencies might go up in value, but many investors see them as mere speculations, not real financial investments. The reason? Similar to real currencies, cryptocurrencies produce no capital, so for you to benefit, someone has 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 service, which increases its worth over time by growing the success and capital of the operation.

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.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the investment community have actually recommended potential investors to steer clear of them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of sending cash and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a great deal of money? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be noted that a currency requires stability so that merchants and consumers can determine what a fair price is for products. Bitcoin and other cryptocurrencies have been anything however 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 price volatility produces a problem. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and circulate them today, making them less viable as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?

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