Cryptocurrency: Friend or an Enemy? It Depends...

A cryptocurrency (or "crypto") is a digital money that may be used to purchase goods and services, but it is secured by an online ledger and powerful encryption. The majority of interest in these unregulated currencies is for profit trading, with speculators sending values high at times.

1. What is cryptocurrency?

Cryptocurrency is a type of online payment that may be used to buy and sell products and services. Many businesses have created their own currencies, known as tokens, that can be exchanged for the goods or services that the business offers. Consider them to be arcade tokens or casino chips. To use the item or service, you'll need to convert actual money for cryptocurrency.

Blockchain is the technology that enables cryptocurrency to function. Blockchain is a decentralized system that handles and records transactions across numerous computers. The security of this technology is part of its attractiveness.

Learn More About Cryptocurrancis...

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

According to CoinMarketCap.com, a market research website, there are about 15,000 distinct cryptocurrencies publicly traded. And the number of cryptocurrencies is growing. On November 29th, 2021, the total value of all cryptocurrencies was over $2.5 trillion, down from an all-time high of almost $2.9 trillion just weeks before. The value of all bitcoins, the most widely used digital money, was estimated to be at $1.1 trillion.

3. Why are cryptocurrencies so popular?

For a number of reasons, cryptocurrency advocates are drawn to it. Here are a few of the most well-known:

Supporters see cryptocurrencies like bitcoin as the money of the future, and they're rushing to acquire them before they grow more valuable.

Some proponents prefer the idea that bitcoin frees central banks from controlling the money supply, because central banks tend to devalue money over time through inflation.

Other advocates favor the blockchain technology that underpins cryptocurrencies because it is a decentralized processing and recording system that is potentially more secure than traditional payment methods.

Some speculators are interested in cryptocurrencies because they are increasing in value, but they are unconcerned about the currencies' long-term adoption as a means of money transfer.

4. Is it wise to invest in cryptocurrencies?

Cryptocurrencies may appreciate in value, but many investors regard them as speculative investments rather than long-term investments. What is the explanation behind this? Cryptocurrencies, like actual currencies, have no cash flow, thus in order for you to benefit, someone else must pay more for the currency than you did.

This is known as the "greater fool" investing hypothesis. In contrast, a well-managed firm grows in value over time through increasing profitability and cash flow.

Some prominent members of the financial world have warned potential investors to avoid them. Warren Buffett, the famed investor, likened bitcoin to paper checks, saying, "It's a pretty effective means of moving money and you can do it anonymously and all that." A check can also be used to send money. Is it true that cheques are worth a lot of money? Just because they have the ability to send money?"

Those who believe that cryptocurrencies like bitcoin will be the money of the future should keep in mind that a currency need stability in order for merchants and customers to establish what a fair price for products is. Throughout much of their history, bitcoin and other cryptocurrencies have been everything but steady. Bitcoin, for example, surged around $20,000 in December 2017 before plummeting to under $3,200 a year later. By December 2020, it was trading at all-time highs.

This price fluctuation is a problem. People are less inclined to spend and circulate bitcoins now if they are worth a lot more in the future, making them less viable as a currency. Why spend a bitcoin when it may be worth three times its current value the following year?

5. How do I go about selling cryptocurrency?

While certain cryptocurrencies, such as bitcoin, may be purchased using US dollars, others need bitcoins or another cryptocurrency to be paid for.

To purchase cryptocurrencies, you'll need a "wallet," which is an internet application that stores your funds. In general, you open an account on a cryptocurrency exchange and then use real money to purchase cryptocurrencies like bitcoin or Ethereum. More information on how to invest in bitcoin may be found here.

Coinbase is a well-known cryptocurrency exchange where you can open a wallet and buy and sell bitcoin and other cryptocurrencies. Cryptocurrencies are also available via an increasing number of online brokers, including eToro, Tradestation, and Sofi Active Investing. Free cryptocurrency transactions are accessible through Robinhood (Robinhood Crypto is available in most, but not all, U.S. states).

6. Are cryptocurrencies legal?

They are without a certain lawful in the United States, while China has effectively outlawed their usage, and whether they are legal in other countries is ultimately a matter of national sovereignty. Also, think about how to protect yourself from scammers that view cryptocurrency as a way to defraud investors. Buyer beware, as always.

7. How can I safeguard myself?

If you're interested in purchasing a cryptocurrency through an ICO, examine the fine print in the company's prospectus for the following details:

Who is the company's owner? A well-known and recognized owner is a good indicator.

Is it being pursued by any other significant investors? If other well-known investors want a piece of the currency, it's a good indicator.

Will you have a share in the company or will you only have access to cash or tokens? This is a crucial difference to make. Owning a stake entitles you to a share of the company's profits (you're an owner), whilst purchasing tokens entitles you to utilize them like chips in a casino.

Is the currency already built, or is the firm seeking funding to do so? The less dangerous a thing is, the further along it is.

Examining a prospectus may be time-consuming; the more information it has, the higher your chances of finding anything authentic. However, even legality does not guarantee that the currency will be successful. That's a whole other subject that needs a great deal of market knowledge.

Beyond those worries, simply owning bitcoin puts you at danger of theft as hackers attempt to break into the computer networks that keep your money safe. In 2014, a well-known exchange went bankrupt after hackers stole hundreds of millions of dollars in bitcoins. Those aren't usual hazards associated with stock and mutual fund investments on major U.S. markets.

Should you buy cryptocurrency?

Cryptocurrency is a highly speculative and volatile investment. Investing in known firms' stocks is often safer than investing in cryptocurrencies like bitcoin.

What online brokers offer cryptocurrencies?

The following are the online brokerages and cryptocurrency exchanges that NerdWallet presently recommends.

Learn More About Cryptocurrancis...