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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you purchase 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 used to purchase goods and services, but utilizes an online ledger with strong cryptography to protect online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times 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 products and services. Many companies have actually released their own currencies, typically called tokens, and these can be traded specifically for the great or service that the company provides. Consider them as you would arcade tokens or gambling establishment chips. You’ll require to exchange real currency for the cryptocurrency to access the excellent or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread throughout lots of computers that handles and records transactions. 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 site. And cryptocurrencies continue to multiply, raising money through initial coin offerings, or ICOs. The overall 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 inspect the current cost to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their fans for a variety of reasons. Here are some of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, most likely prior to they become better Some supporters like the reality that cryptocurrency gets rid of reserve banks from managing the money supply, given that in time these banks tend to lower the worth of cash by means of inflation Other advocates like the technology behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe and secure 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 good investment?

Cryptocurrencies may go up in value, but many financiers see them as simple speculations, not real investments. The factor? Much like genuine currencies, cryptocurrencies produce no capital, so for you to profit, someone needs 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 company, which increases its worth in time by growing the profitability and cash flow of the operation.

For those who see cryptocurrencies such as bitcoin as the currency of the future, it must be noted that a currency requires stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the financial investment community have advised would-be financiers to stay away from them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a very efficient way of transmitting cash and you can do it anonymously and all that. A check is a way of sending cash too. Are checks worth a whole lot of cash? Just because they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can identify what a reasonable price is for products. 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 price volatility develops a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to invest and circulate them today, making them less viable as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

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