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What Is Cryptocurrency? Here’s What You Must 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 utilized to purchase products and services, but uses an online ledger 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 ask about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for items and services. Numerous business have provided their own currencies, typically called tokens, and these can be traded particularly for the excellent or service that the business supplies. Consider 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 using a technology called blockchain. Blockchain is a decentralized technology spread across lots of computer systems that manages and tapes deals. Part of the appeal of this technology is its security.

2. How many 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 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 examine the existing rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract 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, probably before they become more valuable Some fans like the truth that cryptocurrency removes central banks from managing the cash supply, given that in time these banks tend to reduce the worth of money by means of inflation Other fans like the technology behind cryptocurrencies, the blockchain, because 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 going up in value and have no interest in the currencies’ long-lasting acceptance as a way to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may go up in worth, but many financiers see them as mere speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies produce no capital, so for you to profit, somebody 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 business, which increases its value over 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 must be kept in mind that a currency needs stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the financial investment community have encouraged potential investors to avoid them. Of particular note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable way of sending money and you can do it anonymously and all that. A check is a way of transferring cash too. Are checks worth a lot of money? Even if they can transmit money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it needs to be kept in mind that a currency needs stability so that merchants and customers can identify what a fair rate is for products. Bitcoin and other cryptocurrencies have actually 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 on. By December 2020, it was trading at record levels once again.

This price volatility creates a dilemma. If bitcoins might be worth a lot more in the future, people are less 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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