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What Is Cryptocurrency? Here’s What You Must Know
Cryptocurrencies let you purchase goods 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 used to buy products and services, however utilizes an online ledger with strong cryptography to secure online deals. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving costs skyward.

Here are seven 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 items and services. Numerous companies have provided their own currencies, often called tokens, and these can be traded particularly for the great or service that the business offers. Think of 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 innovation spread throughout many computers that handles and tape-records deals. Part of the appeal of this innovation is its security.

2. The number of cryptocurrencies are there? What are they worth?

More than 6,700 various cryptocurrencies are traded openly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to multiply, 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 overall value of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the existing price to purchase Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies attract their fans for a variety of reasons. Here are some of the most popular:

Fans see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable Some fans like the reality that cryptocurrency eliminates reserve banks from handling the cash supply, since in time these banks tend to minimize the value of money via inflation Other supporters like the technology behind cryptocurrencies, the blockchain, due to the fact that it’s a decentralized processing and recording system and can be more safe than traditional payment systems Some speculators like cryptocurrencies since they’re increasing in worth and have no interest in the currencies’ long-lasting approval as a way to move cash

4. Are cryptocurrencies a great investment?

Cryptocurrencies might go up in value, but lots of investors see them as simple speculations, not real financial investments. The factor? Just like real currencies, cryptocurrencies produce no cash flow, so for you to benefit, somebody needs to pay more for the currency than you did.

That’s what’s called “the higher fool” theory of investment. Contrast that to a well-managed business, which increases its value gradually 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 needs stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin might not be that safe, and some noteworthy voices in the investment community have advised would-be financiers to stay away from them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really reliable way of sending money and you can do it anonymously and all that. A check is a way of sending cash too. Are checks worth a whole lot of money? Just because they can send money?” 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 customers can identify what a fair cost is for items. 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 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 rate volatility produces a conundrum. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and distribute them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth three times the value next year?

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