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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 secure 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 ledger with strong cryptography to protect online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators sometimes driving costs skyward.

Here are seven things to ask about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for products and services. Numerous business have actually provided their own currencies, typically called tokens, and these can be traded specifically for the great or service that the company offers. Think of them as you would arcade tokens or gambling establishment 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 numerous computer systems that manages 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 different cryptocurrencies are traded openly, according to CoinMarketCap.com, a marketing research website. And cryptocurrencies continue to multiply, raising money through preliminary 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 overall worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their advocates for a variety of reasons. Here are a few of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably before they become better Some fans like the reality that cryptocurrency removes central banks from managing the cash supply, because over time these banks tend to minimize the value of money by means of inflation Other supporters like the technology 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 going up in value and have no interest in the currencies’ long-lasting acceptance as a method to move money

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies may go up in value, but numerous investors see them as simple speculations, not real investments. The reason? Much like real currencies, cryptocurrencies generate 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 financial investment. Contrast that to a well-managed organization, which increases its value in time by growing the success and cash flow of the operation.

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.” As NerdWallet authors have actually kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment neighborhood have encouraged would-be financiers to steer clear of them. Of particular note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely reliable method of transmitting money and you can do it anonymously and all that. A check is a method of transferring cash too. Are checks worth a whole lot 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 noted that a currency needs stability so that merchants and customers can identify what a reasonable price is for items. Bitcoin and other cryptocurrencies have actually been anything but 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 again.

This cost volatility creates a quandary. If bitcoins might be worth a lot more in the future, individuals are less likely to spend and flow them today, making them less practical as a currency. Why spend a bitcoin when it could be worth three times the value next year?

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