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What Is Cryptocurrency? Here’s What You Ought to Know
Cryptocurrencies let you purchase items and services, or trade them for profit. Here’s more about what cryptocurrency is, how to buy it and how to secure yourself.

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A cryptocurrency (or “crypto”) is a digital currency that can be used to purchase goods and services, however 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 look out for.

1. What is cryptocurrency?

Cryptocurrency is a type of payment that can be exchanged online for products and services. Many companies have actually provided their own currencies, often called tokens, and these can be traded particularly for the good or service that the company provides. Think of 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 an innovation called blockchain. Blockchain is a decentralized innovation spread across numerous computer systems that handles and tape-records transactions. Part of the appeal of this innovation is its security.

2. How many cryptocurrencies exist? What are they worth?

More than 6,700 various 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 total value of all cryptocurrencies on Dec. 18, 2020, was more than $645.7 billion, according to CoinMarketCap, and the overall worth of all bitcoins, the most popular digital currency, was pegged at about $421.7 billion. (You can check the current rate to buy Bitcoin here

3. Why are cryptocurrencies so popular?

Cryptocurrencies interest their advocates for a range 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 purchase them now, probably before they end up being better Some supporters like the truth that cryptocurrency eliminates reserve banks from managing the money supply, given that over time these banks tend to reduce the worth of cash by means of inflation Other fans like the innovation behind cryptocurrencies, the blockchain, since it’s a decentralized processing and recording system and can be more safe and secure than standard payment systems Some speculators like cryptocurrencies since they’re increasing in value and have no interest in the currencies’ long-lasting approval as a method to move money

4. Are cryptocurrencies a great investment?

Cryptocurrencies may increase in worth, however many investors see them as mere speculations, not real financial investments. The reason? Just like real currencies, cryptocurrencies produce 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 service, which increases its value gradually by growing the profitability and capital of the operation.

For those who see cryptocurrencies such as bitcoin as the currency of the future, it needs to be noted that a currency needs stability.” As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may not be that safe, and some notable voices in the financial investment neighborhood have actually recommended potential financiers to avoid them. Of specific note, legendary financier Warren Buffett compared Bitcoin to paper checks: “It’s an extremely efficient method of sending money and you can do it anonymously and all that. A check is a way of transmitting cash too. Are checks worth a whole lot of money? Just because they can transfer cash?” 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 so that merchants and consumers can determine what a fair cost is for goods. Bitcoin and other cryptocurrencies have been anything however stable through much of their history. For example, while Bitcoin traded at near $20,000 in December 2017, its value then dropped to as low as about $3,200 a year later on. By December 2020, it was trading at record levels again.

This cost volatility produces a dilemma. If bitcoins might be worth a lot more in the future, individuals are less most likely to invest and flow them today, making them less feasible as a currency. Why invest a bitcoin when it could be worth 3 times the value next year?

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