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What Is Cryptocurrency? Here’s What You Should 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 safeguard yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to purchase items and services, however utilizes an online ledger with strong cryptography to protect online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators sometimes driving costs skyward.

Here are 7 things to inquire about cryptocurrency, and what to keep an eye out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for items and services. Numerous companies have issued their own currencies, frequently called tokens, and these can be traded particularly for the excellent or service that the company offers. 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 an innovation called blockchain. Blockchain is a decentralized technology spread across lots of computers that handles and records deals. Part of the appeal of this innovation is its security.

2. The number of 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 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 check the existing cost to buy 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, presumably before they become better Some advocates like the truth that cryptocurrency removes reserve banks from managing the money supply, since over time these banks tend to lower the worth of cash via inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more protected than standard payment systems Some speculators like cryptocurrencies because they’re increasing in worth and have no interest in the currencies’ long-lasting approval as a way to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies might go up in worth, but many financiers see them as simple speculations, not real financial investments. The factor? Similar to real currencies, cryptocurrencies create no cash flow, so for you to benefit, somebody 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 company, which increases its value with time by growing the profitability and capital 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 might not be that safe, and some significant voices in the investment community have recommended would-be financiers to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient way of transferring cash and you can do it anonymously and all that. A check is a method of transferring cash too. Are checks worth a great deal of money? Even if they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency requires stability so that merchants and customers can identify what a reasonable cost is for items. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, 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 creates a dilemma. If bitcoins might be worth a lot more in the future, people are less most likely to invest 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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