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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 safeguard yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be utilized to purchase items 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 sometimes driving rates 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 goods and services. Lots of business have actually issued their own currencies, typically called tokens, and these can be traded specifically for the excellent or service that the company provides. Consider them as you would arcade tokens or casino chips. You’ll need to exchange genuine currency for the cryptocurrency to access the good or service.

Cryptocurrencies work utilizing a technology called blockchain. Blockchain is a decentralized technology spread across 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 openly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to proliferate, raising money through preliminary 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current rate to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

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

Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, most likely before they end up being better Some advocates like the reality that cryptocurrency removes central banks from managing the money supply, since with time these banks tend to decrease the value of cash via inflation Other supporters like the innovation 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 since they’re increasing in value and have no interest in the currencies’ long-lasting acceptance as a method to move money

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies might go up in value, but lots of investors see them as mere speculations, not real financial investments. The factor? Much like genuine currencies, cryptocurrencies create 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 investment. Contrast that to a well-managed business, which increases its worth 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 should be kept in mind that a currency needs stability.” As NerdWallet writers have actually kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the investment community have encouraged potential investors to steer clear of them. Of specific note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a very reliable method of transmitting cash and you can do it anonymously and all that. A check is a method of sending money 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 must be kept in mind that a currency needs stability so that merchants and customers can determine what a reasonable cost is for products. 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 once again.

This rate volatility creates a problem. 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 invest a bitcoin when it could be worth 3 times the worth next year?

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