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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 protect yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase items and services, but 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 at times driving prices skyward.

Here are seven things to ask about cryptocurrency, and what to watch out for.

1. What is cryptocurrency?

Cryptocurrency is a kind of payment that can be exchanged online for products and services. Numerous companies have actually provided their own currencies, often called tokens, and these can be traded specifically for the good 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 using a technology called blockchain. Blockchain is a decentralized technology spread across lots of computers that handles and tapes transactions. 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 site. And cryptocurrencies continue to proliferate, raising money through preliminary coin offerings, or ICOs. The total value of all cryptocurrencies on Dec. 18, 2020, was more than $645.7 billion, according to CoinMarketCap, and the total value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can inspect the existing price to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies appeal to 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 before they become better Some advocates like the reality that cryptocurrency eliminates central banks from handling the cash supply, given that over time these banks tend to reduce the value of cash 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 conventional payment systems Some speculators like cryptocurrencies since they’re going up in worth and have no interest in the currencies’ long-lasting acceptance as a method to move cash

4. Are cryptocurrencies a great financial investment?

Cryptocurrencies may increase in value, however numerous financiers see them as mere speculations, not real financial investments. The factor? Similar to genuine currencies, cryptocurrencies produce no capital, so for you to benefit, somebody needs 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 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 kept in mind that a currency needs stability.” As NerdWallet authors have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some notable voices in the investment community have advised potential financiers to stay away from them. Of particular note, legendary investor Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient way of transferring money and you can do it anonymously and all that. A check is a method of transmitting cash too. Are checks worth a great deal of money? Just because they can transmit cash?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency requires stability so that merchants and consumers can determine what a fair cost is for products. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For instance, while Bitcoin traded at near $20,000 in December 2017, its worth then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels again.

This price volatility develops a conundrum. If bitcoins might be worth a lot more in the future, individuals are less likely to invest and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the worth next year?

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