What Is Cryptocurrency? Here’s What You Must 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 utilized to buy items and services, but uses an online ledger with strong cryptography to protect online transactions. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving prices skyward.
Here are 7 things to ask about cryptocurrency, and what to keep an eye out for.
1. What is cryptocurrency?
Cryptocurrency is a type of payment that can be exchanged online for products and services. Numerous business have released their own currencies, often called tokens, and these can be traded particularly for the excellent or service that the company supplies. Think about them as you would arcade tokens or gambling establishment chips. You’ll need to exchange real currency for the cryptocurrency to access the great or service.
Cryptocurrencies work using an innovation called blockchain. Blockchain is a decentralized innovation spread throughout many computer systems that handles and records transactions. Part of the appeal of this technology is its security.
2. How many cryptocurrencies exist? 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 overall value 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 examine the current cost to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their fans for a variety of reasons. Here are some of the most popular:
Advocates see cryptocurrencies such as Bitcoin as the currency of the future and are racing to purchase them now, probably before they end up being more valuable Some fans like the reality that cryptocurrency gets rid of reserve banks from handling the cash supply, because gradually these banks tend to minimize the worth of money by means of inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more protected than traditional payment systems Some speculators like cryptocurrencies due to the fact that they’re going up 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 might go up in value, but lots of investors see them as simple speculations, not real financial investments. The reason? Much like real currencies, cryptocurrencies generate no capital, so for you to benefit, someone 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 business, which increases its value with time by growing the success and capital 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 noted, cryptocurrencies such as Bitcoin may not be that safe, and some significant voices in the investment community have advised potential financiers to avoid them. Of specific note, famous investor Warren Buffett compared Bitcoin to paper checks: “It’s a really effective way of sending money and you can do it anonymously and all that. A check is a way 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 must be noted that a currency requires stability so that merchants and consumers can identify what a fair price 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 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 cost volatility develops a quandary. If bitcoins might be worth a lot more in the future, people are less likely to invest and circulate them today, making them less practical as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?