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What Is Cryptocurrency? Here’s What You Need to Know
Cryptocurrencies let you buy 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 deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving prices skyward.

Here are seven things to inquire about cryptocurrency, and what to look out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for goods and services. Lots of business have released their own currencies, typically called tokens, and these can be traded specifically for the good or service that the company offers. Think of them as you would arcade tokens or casino chips. You’ll require to exchange real currency for the cryptocurrency to access the good or service.

Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized technology spread across many computers that handles and tapes transactions. Part of the appeal of this technology is its security.

2. How many cryptocurrencies are there? What are they worth?

More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to multiply, raising money through initial 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 overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing price 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 buy them now, probably prior to they become more valuable Some advocates like the fact that cryptocurrency eliminates central banks from managing the money supply, because over time these banks tend to minimize the value of money 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 secure than conventional payment systems Some speculators like cryptocurrencies due to the fact that they’re increasing in worth and have no interest in the currencies’ long-lasting acceptance as a way to move money

4. Are cryptocurrencies a good financial investment?

Cryptocurrencies might increase in worth, however many financiers see them as mere speculations, not real financial investments. The reason? Similar to genuine currencies, cryptocurrencies generate no cash flow, so for you to profit, someone needs 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 business, which increases its value over 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 needs to be kept in mind that a currency requires stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some significant voices in the financial investment neighborhood have advised would-be financiers to avoid them. Of specific note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient way of transferring money and you can do it anonymously and all that. A check is a way of transferring 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 needs to be noted that a currency requires stability so that merchants and consumers can determine what a reasonable rate is for items. Bitcoin and other cryptocurrencies have actually been anything however stable through much of their history. While Bitcoin traded at close to $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 quandary. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and circulate them today, making them less feasible as a currency. Why spend a bitcoin when it could be worth three times the worth next year?

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