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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase goods 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 used to buy goods and services, however uses 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 costs 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. Many companies have actually issued their own currencies, often called tokens, and these can be traded particularly for the good or service that the company provides. Think about them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized innovation spread throughout many computers that handles and tapes 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 publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to multiply, 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 total worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing cost to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

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

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably before they end up being more valuable Some advocates like the fact that cryptocurrency eliminates central banks from managing the money supply, given that gradually these banks tend to reduce 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 standard 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-term approval as a method to move money

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies may increase in value, however numerous investors see them as simple speculations, not real investments. The reason? Just like real currencies, cryptocurrencies generate no cash flow, 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 financial investment. Contrast that to a well-managed organization, which increases its value 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 needs stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment community have encouraged would-be financiers to avoid them. Of specific note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective way of transmitting money and you can do it anonymously and all that. A check is a method of transferring money too. Are checks worth a whole lot of cash? Even if they can send cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it ought to be kept in mind that a currency requires stability so that merchants and customers can determine what a reasonable rate 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 price volatility develops a quandary. If bitcoins might be worth a lot more in the future, people are less most likely to invest and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?

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