What Is Cryptocurrency? Here’s What You Should Know

1. What’s cryptocurrency?
Cryptocurrency is a type of payment that may be exchanged online for services and goods. Many companies have issued their own currencies, often known as tokens, and these may be traded specifically for the good or perhaps service that the company offers. Think of them as you’d arcade tokens or perhaps casino chips. You will have to exchange real currency for the cryptocurrency to access the good or perhaps service.

Cryptocurrencies work using a technology called the blockchain. Blockchain is actually a decentralized technology spread across many computers that manage and record transactions. Part of the benefit of this concept is its security.

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2. How many cryptocurrencies are there? What exactly are they worth?
More than 6,700 different cryptocurrencies are actually traded publicly, according to CoinMarketCap.com, a market research site. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or perhaps ICOs. The total value of all cryptocurrencies on Feb. eighteen, 2021, was much more than $1.6 trillion, according to CoinMarketCap, and the total value of all bitcoins, the most popular digital currency, was pegged at approximately $969.6billion.

3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to the supporters of theirs for several factors. Allow me to share several of the most popular:

Supporters see cryptocurrencies such as Bitcoin as the future currency and are actually racing to purchase them today, presumably before they start to be more valuable.

Some supporters like the fact that cryptocurrency removes central banks from managing the money supply since, over time, these banks tend to decrease the value of money via inflation.

Various other supporters like the technology behind cryptocurrencies, the blockchain, since it is a decentralized processing and recording system and can be more secure than traditional payment systems.

Some speculators as cryptocurrencies since they are going up in value and have no interest in the currencies’ long-term acceptance to move cash.

4. Are cryptocurrencies a good investment?
Cryptocurrencies may go up in value, but many investors see them as mere speculations, not real investments. The reason? The same as real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay much more for the currency than you did.

That is what is called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases the value of its overtime by growing the profitability and cash flow of the operation.

As NerdWallet writers have noted, cryptocurrencies such as Bitcoin may well not be that safe, and some notable voices in the investment community have advised would-be investors to steer clear of them. Of particular note, legendary investor Warren Buffett compared bitcoin to paper checks: “It’s a really effective method of transmitting money, and you can do it anonymously and all that. A check is a method of transmitting money too. Are checks well worth a good deal of cash? Just since they can transmit money?”

For individuals who see cryptocurrencies such as Bitcoin as the currency of the future, it must be noted that a currency needs stability so that consumers and merchants can determine what a reasonable price is actually for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of the history of theirs. For instance, while Bitcoin traded at close to $20,000 in December 2017, its value dropped to as small as approximately $3,200 a year later. By December 2020, it was trading at record levels once again.

This price volatility creates a conundrum. If bitcoins might be well worth a lot more in the future, individuals will not be as likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it might be worth 3 times the value next year?

5. How do I buy cryptocurrency?
While some cryptocurrencies, including Bitcoin, are actually available for purchase with U.S. dollars, others require you to pay with bitcoins or perhaps another cryptocurrency.

To buy cryptocurrencies, you will need a “wallet,” an online app that could hold the currency of yours. In general, you create an account on an exchange, after which you can transfer cash that is real to buy cryptocurrencies like Ethereum or perhaps Bitcoin. Here is more on how you can invest in Bitcoin.

Coinbase is actually one popular cryptocurrency trading exchange where you can create both a wallet and buy and sell Bitcoin and other cryptocurrencies. Additionally, a growing number of online brokers offer cryptocurrencies, like eToro, Sofi, and Tradestation Active Investing. Robinhood offers free cryptocurrency trades (Robinhood Crypto is actually readily available in most, but not all, U.S. states).

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