Cryptocurrencies have become increasingly popular over the past few years because of their decentralized nature and the opportunities for investment that they open up to a wide range of investors.
While cryptocurrencies are still in the initial stages of development, there is a lot to be excited about when it comes to potential opportunities for investors.
However, before entering the cryptocurrency market, it’s important to understand the pros and cons and all that you need to know before you consider taking the plunge.
What Is Cryptocurrency?
Cryptocurrency is a term used to describe digital money that is decentralized and isn’t controlled by banks or governments. Cryptocurrencies exist in the form of digital coins or tokens, also known as altcoins, which are created through a process called mining. People who mine altcoins are rewarded with altcoins for their work.
Cryptocurrency has been around since 2008, and Bitcoin was the first of these currencies. Today, there are thousands of cryptocurrencies available in the market. They are mainly used for trading purposes and can be exchanged for more traditional forms of payment like money or gold. Cryptocurrency trading pairs such as BTC/ETH, USDC/USDT and Solana USDT are becoming increasingly popular as more investors around the world have begun to trade in this market.
They can be exchanged for cash online (most services will charge a fee for this) or used directly to pay for things at stores that accept them. Cryptocurrencies can also be used to pay for other cryptocurrencies—for example, someone who owns Bitcoin could pay another person who owns Litecoin in return for goods and services.
Pros and Cons of Crypto Investing
Cryptocurrency Pros
- Cryptocurrency gives investors a chance to profit from the growth of some of the most popular cryptocurrencies, including Bitcoin and Ethereum, as well as lesser-known coins with smaller market capitalizations.
- Cryptocurrencies are growing in popularity and are becoming more widely accepted.
- The total value of all cryptocurrencies in circulation could top $1 trillion by year end 2018, according to CoinMarketCap data.
- Cryptocurrency mining utilizes computing power in order to complete transactions on the blockchain. This added computing power improves security and reduces transaction processing times along with many other benefits for users and investors alike.
- There is currently a limited supply of Bitcoin available for purchase, unlike shares of companies that are issued by corporations. Once all Bitcoins have been mined, there will be nowhere else for miners to turn for more Bitcoins—which means scarcity could ultimately drive up the price over time.
- With cryptocurrency, transactions take place online and cannot be counterfeited. Since all of the transactions are recorded in a blockchain database on thousands of computers around the world, no one can alter the records once they have been entered into the system.
- It’s an innovative way to keep money secure. Bitcoin can be accessed from anywhere without having to use a bank account or credit card number.
- Not being regulated by a government makes cryptocurrency safer because there are no charges or fees when you buy or sell money (unlike wire transfers). There’s also no risk of identity theft since all transactions are anonymous.
- You have complete control over your funds because you get your own private key that gives you access to your wallet and prevents third parties from getting access.
Cons Of Cryptocurrency
- Some critics argue that cryptocurrencies could have a limited lifespan because governments cannot allow them to exist indefinitely as they represent competition in an area governments consider theirs: control over money supply and currency regulation.
- In addition, some experts argue that cryptocurrencies’ use provides a way for people to make anonymous transactions, which could be used for illegal purposes such as financing terrorism.
- Cryptocurrencies are also pretty volatile—the value fluctuates a lot day to day and hour to hour. This volatility means that you can make or lose money quickly if you buy at the wrong time or sell at the wrong time.
Cryptocurrency Key Terms
Cryptocurrency is constantly changing, so it can be hard to keep track of what’s going on—but there are a few key terms that are helpful to understand:
Decentralized
This means that no one person or company controls the currency. Anyone can access it and trade it. It’s free from the influence of any central authority.
Cryptography
Cryptography is used to secure transactions made with cryptocurrency by encrypting them (meaning only those involved in the transaction can see it). This has implications for both security and anonymity.
Blockchain
The blockchain is a public ledger that contains all cryptocurrency transactions ever made. Each block on the chain contains an encrypted record of the previous blocks, making it virtually impossible to fake or change records without everyone noticing.
Coin
A coin is a cryptocurrency that can be spent on goods or services. It’s similar to the coins you have in your pocket but with one important difference: unlike paper currencies, these coins have no physical form. They only exist in the digital world and their value depends on how much people value them.
Token
Much like a coin, a token is a digital currency that can be used for transactions. The main difference between coins and tokens is that tokens usually represent something else than currency, for example an asset or reward points. In fact, tokens are more similar to gift cards than to cash because they don’t have an inherent value themselves but derive their value from another source.
Asset
Assets are cryptocurrencies that represent something other than currency. Their value is derived from their use and utility rather than monetary exchange.
