1. What is cryptocurrency?
Cryptocurrency is a form of payment that can be exchanged online for goods and services. Many companies have issued their own currencies, often called tokens, and these can be traded specifically for the good or service that the company provides. Think of them as you would arcade tokens or casino 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 many computers that manages and records transactions. Part of the appeal of this technology is its security.
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2. How many cryptocurrencies are there? What are they worth?
More than 6,700 different cryptocurrencies are traded publicly, according to CoinMarketCap.com, a market research website. And cryptocurrencies continue to proliferate, raising money through initial coin offerings, or ICOs. The total value of all cryptocurrencies on Jan. 27, 2021, was more than $897.3 billion, according to CoinMarketCap, and the total value of all bitcoins, the most popular digital currency, was pegged at about $563.8 billion. (You can check the current price to buy Bitcoin here.)
Best cryptocurrencies by market capitalization
Cryptocurrency
Market Capitalization
Bitcoin
$563.8 billion
Ethereum
$142.9 billion
Tether
$25.2 billion
Polkadot
$13.9 billion
XRP
$11.4 billion
Cardano
$9.7 billion
Chainlink
$8.3 billion
Litecoin
$8.1 billion
Bitcoin Cash
$7 billion
Binance Coin
$6.2 billion
Data current as of Jan. 27, 2021.
>>Learn more: How to invest in Bitcoin
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3. Why are cryptocurrencies so popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation
Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems
Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money
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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? Just like real currencies, cryptocurrencies generate no cash flow, so for you to profit, someone has to pay more for the currency than you did.
That’s what’s called “the greater fool” theory of investment. Contrast that to a well-managed business, which increases its value over time by growing the profitability and cash flow of the operation.
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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 noted, cryptocurrencies such as Bitcoin may 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 very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money too. Are checks worth a whole lot of money? Just because they can transmit money?"
For those who see cryptocurrencies such as Bitcoin as the currency of the future, it should be noted that a currency needs stability so that merchants and consumers can determine what a fair price is for goods. Bitcoin and other cryptocurrencies have been anything but stable through much of their history. For example, 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 price volatility creates a conundrum. If bitcoins might be worth a lot more in the future, people are less likely to spend and circulate them today, making them less viable as a currency. Why spend a bitcoin when it could be worth three times the value next year?
For example, in 2017, there was a civil war of sorts that emerged in bitcoin. Many of the largest companies that provide bitcoin custody and exchange services aligned with large bitcoin miners that controlled 85%+ of the network’s mining capacity (or hash rate) in an attempt to force a change to the consensus rules. This group of power brokers wanted to double the bitcoin block size as a means to increase the network’s transaction capacity. However, an increase to the block size would have required a change to the network consensus rules, which would have split (or hard-forked) the network. As part of a negotiated 'agreement,' the group proposed to activate a significant network upgrade (referred to as Segwit – an upgrade that would not change the consensus rules) at the same time the block size would be doubled (which would have changed the consensus rules). With most all large service providers and miners onboard, plans were set in motion to effect the changes. However, a curve ball was thrown when a user-led effort prompted the activation of the Segwit network upgrade without changing the network consensus rules and without increasing the block size (read more here). The effort to change the network’s consensus rules failed miserably and bitcoin steadily marched forward undisturbed. In practice, it often cannot be known whether bitcoin is resistant to various threats until the threats present themselves. In this case, it was disorder that prevented coordinated forces from influencing the network, and at the same time, everyone learned the extent to which bitcoin was resistant to censorship, which further strengthened the network.bitcoin bloomberg location bitcoin bitcoin фильм bitcoin rt ethereum course ethereum dao zcash bitcoin
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