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, however uses 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 costs skyward.
Here are 7 things to ask about cryptocurrency, and what to watch out for.
1. What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for items and services. Lots of companies have actually released their own currencies, frequently called tokens, and these can be traded particularly for the good or service that the business supplies. Think about 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 innovation spread throughout numerous computers that handles and tape-records deals. 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 market research website. And cryptocurrencies continue to proliferate, 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing rate to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their fans for a range of reasons. Here are a few of the most popular:
Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, most likely before they become better Some supporters like the fact that cryptocurrency eliminates reserve banks from managing the cash supply, because over time these banks tend to lower the value of money by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe than standard payment systems Some speculators like cryptocurrencies because they’re going up in worth and have no interest in the currencies’ long-term acceptance as a method to move money
4. Are cryptocurrencies a great investment?
Cryptocurrencies may go up in worth, but lots of investors see them as simple speculations, not real investments. The factor? Much like genuine currencies, cryptocurrencies produce no capital, so for you to benefit, someone has 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 service, 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 ought to be noted that a currency needs stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the investment neighborhood have encouraged prospective investors to stay away from them. Of particular note, famous financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient method of transmitting cash and you can do it anonymously and all that. A check is a method of transferring cash too. Are checks worth a lot of cash? Just because they can transfer cash?” 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 so that merchants and customers can identify what a fair rate is for items. Bitcoin and other cryptocurrencies have been anything but 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 once again.
This cost volatility develops a problem. If bitcoins might be worth a lot more in the future, individuals are less likely to spend 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?