Cryptocurrency has gained momentum in recent years due to its increase in value and as a form of investment. In today’s digital world, money has also become intangible and digital. Secured with blockchain technology and cryptography, cryptocurrency is decentralized, unlike traditional financial systems.
The first cryptocurrency, Bitcoin, born in 2009, was intended to be a daily payment method, but later traders understood its increase in value over the years as there is only a limited set number of Bitcoins, creating a scarcity. Market demand, media, news, and regulatory changes also determine the value of Bitcoins. Many other blockchain platforms and cryptocurrencies like Ethereum, Tether, Dogecoin and many more later followed Bitcoin.
As with everything, cryptocurrency has its pros and cons. The value of crypto is volatile and before investing in it, there are certain factors to be noted, and this article deals with the benefits and risks associated with investing in crypto. Before that let us understand what cryptocurrency is.
What is Cryptocurrency?
Cryptocurrency is a digital currency that is based on blockchain technology, spread across a huge number of computers. It is decentralized and transparent, which means transactions are peer-to-peer and are not authorized by the government or institutions.
The blockchain technology is a public ledger and makes it possible for crypto to be secure and transparent by distributing the stored information across the network. The data stored like transactions, payments, or orders cannot be deleted or altered. Cryptocurrency is created by a process called mining, which uses computing power to verify transactions and solve mathematical equations by complex computing.
The first cryptocurrency was created as an easy way of daily transactions, but later became a form of online asset or investment. As the popularity increased, transaction speed was also limited along with high mining costs.
Benefits of Cryptocurrencies
Just by looking at the trend of cryptocurrency growth in the past few years, it is sure that this virtual form of currency has some great advantages and benefits other than the traditional financial system.
- Decentralization
Cryptocurrency is decentralized and hence no authority has control over transactions or payments. Many people think that this property makes crypto even more secure as there is no monopoly over the currency in the form of interest or cash flow. The value, interest, and payments are all based on demand, supply, and other factors and are not under any authority to control.
- Inflation control
Many currencies have been affected by inflation as the money supply increases relative to the economy, and some other factors like supply or demand shocks. This can negatively impact the economy, causing a loss in the value of the currency, increasing the rate of every product, and making it hard to save money.
Cryptocurrencies are not affected by any of these financial market trends and are not prone to inflation. It also has a set number on the supply hence the increase in value. For example, Bitcoin has a hard cap of 21 million Bitcoins and is expected to be minted by 2140. The value is supposed to increase even more because of the scarcity in supply.
- Transparent
As cryptocurrency uses blockchain technology, money transactions can be viewed by anybody using Blockchain Explorer. It is safe and corruption-free as the recorded data cannot be altered and can be viewed by users themselves.
- Accessibility
Investing and trading in crypto only requires a computer or smartphone with an internet connection to access. Anybody from anywhere around the world can get access effortlessly.
- Security
Crypto wallets are secured using blockchain technology and cryptography. It requires a private key to get access to the private wallets. There are many ways to secure the wallets even more like hardware or cold wallets, and multi-signature wallets.
- Faster transactions
Transferring funds in a traditional financial system requires time and effort unless it is UPI or online payments. However, online transactions also have limitations like the number of transactions per day and limit on the amount to be transferred. Crypto does not have many restrictions and is much faster than banks to transfer currencies.
- Anonymity
There is an option to invest anonymously in crypto. Many platforms don’t require personal details or KYC to open a wallet. Further, there is no third-party intervention making it even more secure. The wallet address can be made pseudonymously.
Risks of Cryptocurrencies
- Online hacks or scams
Crypto is digital currency and everything digital is prone to hacks and scams. Hackers can find loopholes in the platform or mess with transactions by taking over private keys through various fraudulent methods. But, there are many preventive measures to safeguard the wallet like using cold storage or special hardware to store the wallets offline.
- Expensive mining
Crypto requires high-end computers and great computer knowledge to mine a single coin. These are not only expensive and time-consuming, but they have some societal and environmental impacts like noise pollution and high power consumption.
- Hard recovery
If the wallet is lost, it would be a nightmare to recover it. There are theoretically some methods to recover like changing account details immediately, finding details from the blockchain to getting help from the platform, or hiring professionals. However, none of these methods guarantee the recovery of a lost or stolen wallet.
- Lack of policies
Every crypto platform has its own rules and there is no set of policies like refund or cancellation policies.
Conclusion
Cryptocurrencies are increasingly popular as technology advancements, processing finances, and many more uses. Currently, there are well over five thousand cryptocurrencies in the market, and in this case, the growth is exponential, bringing in new opportunities in fields such as having improved possibilities of investment, and financial freedom.
Giving particular importance to investors, business people, and other stakeholders, this series demystifies the world of cryptocurrencies and their evolving role in the new economy. By keeping in mind the risks and benefits, one can choose the best platform to invest and trade crypto. As there will be a negative side for every positive side, these cons of crypto can also be eradicated by proper preventive measures. Make sure to invest in a reputed and trustable platform.