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What Is Cryptocurrency? Here’s What You Should Know
Cryptocurrencies let you buy goods 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 sometimes driving rates skyward.

Here are 7 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 products and services. Lots of companies have provided their own currencies, frequently called tokens, and these can be traded particularly for the great or service that the business offers. 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 good or service.

Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across numerous computers that handles and tape-records deals. 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 publicly, according to CoinMarketCap.com, a marketing research website. 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 worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing price to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to their fans for a variety 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, probably before they end up being more valuable Some fans like the truth that cryptocurrency removes central banks from managing the cash supply, since over time these banks tend to reduce the worth of cash by means of inflation Other supporters like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe 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 approval as a method to move cash

4. Are cryptocurrencies an excellent financial investment?

Cryptocurrencies might increase in worth, but numerous investors see them as mere speculations, not real investments. The factor? Much like genuine currencies, cryptocurrencies generate no capital, so for you to profit, someone 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 service, which increases its worth with 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 should be kept in mind that a currency requires stability.” As NerdWallet authors have noted, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the financial investment neighborhood have actually advised potential 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 sending cash and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a lot of money? Even if 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 needs stability so that merchants and consumers can determine what a reasonable price is for products. Bitcoin and other cryptocurrencies have actually been anything but stable through much of their history. For instance, 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 price volatility develops a quandary. If bitcoins might be worth a lot more in the future, people are less likely to invest and distribute them today, making them less viable as a currency. Why spend a bitcoin when it could be worth 3 times the value next year?

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