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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 protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, but 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 sometimes driving prices skyward.

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

1. What is cryptocurrency?

Cryptocurrency is a form of payment that can be exchanged online for goods and services. Lots of companies have released their own currencies, frequently called tokens, and these can be traded particularly for the great 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 excellent or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout lots of computer systems that manages and tapes transactions. Part of the appeal of this technology is its security.

2. The number of cryptocurrencies exist? What are they worth?

More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to proliferate, 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 total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can examine the existing cost to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their advocates for a range 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, most likely before they become better Some fans like the reality that cryptocurrency removes reserve banks from managing the money supply, since gradually these banks tend to reduce the value of cash via inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe than standard payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-term acceptance as a way to move cash

4. Are cryptocurrencies a good investment?

Cryptocurrencies may go up in worth, but lots of investors see them as mere speculations, not real financial investments. The factor? Much like real currencies, cryptocurrencies generate no capital, so for you to benefit, 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 in 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 noted that a currency requires stability.” As NerdWallet authors have actually noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment community have actually encouraged potential financiers to steer clear of them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a lot of cash? Just because they can transfer 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 requires stability so that merchants and consumers can determine what a fair cost is for goods. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. For instance, while Bitcoin traded at near $20,000 in December 2017, its worth then dropped to as low as about $3,200 a year later. By December 2020, it was trading at record levels again.

This rate volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and distribute them today, making them less practical as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?

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