What is Cryptocurrency? Here's What You Should Know

Cryptocurrencies allow you to buy goods and services, or sell them for a profit. Here's more about what cryptocurrency is, how to buy it and how to protect yourself.

Digital currency (or "crypto") is a digital currency that can be used to purchase goods and services, but uses an online ledger with strong cryptography to protect online transactions. Most of the interest in these uncontrolled investments is for profit, sometimes speculators push prices up.

The most popular cryptocurrency, Bitcoin, had a volatile price movement this year, reaching nearly $ 65,000 in April before losing almost half of its value in May. (You can check the current purchase price of Bitcoin here.)

Here are seven things you should ask yourself about cryptocurrency, and what you should be aware of.

1. What is cryptocurrency?

Cryptocurrency is an online payment method that can be exchanged online for goods and services. Many companies have issued their own funds, often referred to as tokens, and these may be sold exclusively for a profit or service offered by the company. Think of them as you can play tokens or chip chips. You will need to exchange real money with digital currency to access the best or service.

Cryptocurrencies operate using a technology called blockchain. Blockchain is a distributed technology spread across multiple computers that manage and record transactions. Part of the appeal of this technology is its safety.

»Learn more: What is a blockchain, and how does it work?

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2. How many cryptocurrensets are there? Why are they important?

More than 10,000 cryptocurrensets are sold publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate, raising money through initial cash offers, or ICOs. The total value of all digital investments on August 4, 2021, was more than $ 1.6 trillion - down from April at $ 2.2 trillion, according to CoinMarketCap. The total value of all bitcoins, which is the most popular digital currency, was identified at about $ 740 billion, and also found a place in recent prices. However, the market value of bitcoin has fallen since April with a high of $ 1.2 trillion.

3. Why are cryptocurrencies so popular?

Cryptocurrencies are attractive to their supporters for a variety of reasons. Here are some of the most popular:

Proponents of cryptocurrencies see cryptocurrencies like Bitcoin as the currency of the future and rush to buy them now, perhaps before they become more valuable

Some proponents prefer the fact that cryptocurrency removes major banks from managing the supply of funds, because over time these banks tend to lower their interest rates on inflation

Some proponents prefer cryptocurrencies, blockchain, because the editing and recording system is legal and can be much more secure than traditional payment systems.

Some speculators prefer cryptocurrensets because they go up in value and have no interest in long-term cash flow as a way to transfer money.

4. Are cryptocurrensets a good investment?

Cryptocurrencies can go up in value, but many investors see them as just a guess, not a real investment. The reason? Like real money, cryptocurrencies do not make money flow, so in order to win, someone has to pay that amount more than you did.

This is the so-called "great fool" of the investment idea. Compare that with a well-managed business, which increases its value over time by increasing profits and cash flow.

Some notable words in the investment community have advised potential investors to stay away from them. Most notably, renowned investor Warren Buffett compared Bitcoin to paper testing: “It's a very effective way to transfer money and you can do it anonymously and do it all. A check is a way to transfer money too. Are the checks more expensive? Because they could transfer money? "

»Learn more: Is Bitcoin Safe?

For those who see cryptocurrencies like Bitcoin as a future currency, it should be noted that the type of currency needs to be stabilized so that traders and buyers can determine what the fair value of the asset is. Bitcoin and other cryptocurrency were unstable with much of their history. For example, when Bitcoin traded at about $ 20,000 in December 2017, its value dropped to about $ 3,200 the following year. In December 2020, it was trading at recording rates again.

This price fluctuations create a conundrum. If bitcoins can gain more in the future, people are less likely to use them and turn them around today, making them less powerful as money. Why use bitcoin when it can cost three times as much as next year?

5. How do I buy cryptocurrency?

While some cryptocurrencies, including Bitcoin, are available for purchase in US dollars, others require you to pay in bitcoins or another cryptocurrency.

To purchase cryptocurrency, you will need a "wallet," an online application that can hold your money. Usually, you create an account in exchange, and then you can transfer real money to buy cryptocurrensets like Bitcoin or Ethereum. Here's more about how to invest in Bitcoin.

Coinbase is one of the most popular digital currency exchanges where you can create a wallet and buy and sell Bitcoin and other cryptocurrency. Also, a growing number of online traders are offering cryptocurrency, such as eTrue, Tradeing station and Sofi Active Investing. Robinhood offers free cryptocurrency trading (Robinhood Crypto is available in most, but not all, U.S. sources say.

6. Are cryptocurrencies legal?

There is no doubt that they are legal in the United States, although China has banned their use, and ultimately whether they are legal depends on each country. And be sure to consider how you can protect yourself from fraudsters who see cryptocurrencies as an investment opportunity. As always, pay attention to the buyer.