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 protect yourself.
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A cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services, however uses an online ledger with strong cryptography to secure online deals. Much of the interest in these uncontrolled currencies is to trade for profit, with speculators at times driving costs skyward.
Here are seven 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 goods and services. Numerous companies have provided their own currencies, typically 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 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 lots of computers that handles and records transactions. Part of the appeal of this technology is its security.
2. How many cryptocurrencies are there? What are they worth?
More than 6,700 various cryptocurrencies are traded publicly, according to CoinMarketCap.com, a marketing research site. And cryptocurrencies continue to proliferate, raising money through initial 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 check the present price to purchase Bitcoin here
3. Why are cryptocurrencies so popular?
Cryptocurrencies interest their fans for a range 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 purchase them now, probably before they end up being more valuable Some supporters like the fact that cryptocurrency eliminates reserve banks from managing the cash supply, since gradually these banks tend to decrease the worth of money via inflation Other advocates like the innovation behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more safe and secure than conventional payment systems Some speculators like cryptocurrencies since they’re going up in worth and have no interest in the currencies’ long-term approval as a way to move money
4. Are cryptocurrencies a great financial investment?
Cryptocurrencies might increase in value, but lots of financiers see them as mere speculations, not real investments. The factor? Much like real currencies, cryptocurrencies produce no cash flow, so for you to benefit, someone 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 organization, 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 should be noted that a currency needs stability.” As NerdWallet writers have kept in mind, cryptocurrencies such as Bitcoin may not be that safe, and some noteworthy voices in the financial investment community have actually encouraged potential financiers to steer clear of them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s a really efficient way of sending cash and you can do it anonymously and all that. A check is a method of sending cash too. Are checks worth a great deal of cash? Even if they can send money?” For those who see cryptocurrencies such as Bitcoin as the currency of the future, it must be kept in mind that a currency requires stability so that merchants and customers can determine what a fair price is for items. Bitcoin and other cryptocurrencies have actually 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 again.
This rate volatility develops a quandary. If bitcoins might be worth a lot more in the future, people are less likely to spend and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth 3 times the worth next year?