Like any other currency we are used to, cryptocurrency helps people around the world buy and sell goods and services. Thousands of people today are investing in cryptocurrencies and making huge profits. Many of them have also had significant losses from trading cryptocurrencies. It is always vital to make the best use of options trading to theorize your future direction in investing. before finding out if safe investment in cryptocurrenciesa brief introduction would help.
Cryptocurrency differs from normal currency only in its digital form. Unlike physical or printed currency, where a centralized authority is primarily in charge, in cryptocurrency, a decentralized system verifies transactions and maintains records using cryptography. That is why governments do not issue cryptocurrencies. For example, launched in 2009, Bitcoin is currently the most popular cryptocurrency globally.
We put together this article to help you keep an eye on all things cryptocurrency. In this way, you will be more informed before making any investment decisions in cryptocurrencies.
What are the benefits of investing in cryptocurrencies?
One thing about cryptocurrencies is that they are relatively recent inventions that are here to keep all the benefits that come with them. Without a doubt, the world of cryptocurrencies has a lot to offer. But you must learn to harness it and hone the skill.
With that being said, here is how you can benefit from investing in cryptocurrency;
- The potential for high rewards
As in any other business, the dynamics of supply and demand in cryptocurrencies often play a large role in shaping returns. The demand for digital currencies by buyers and their supply by miners mainly drives prices.
All cryptocurrencies today (over 10,000) tend to experience rapid spikes and drops in value. That is one of the few things that these digital currencies have in common. Therefore, jumping on board at the right time can lead to huge profits.
- A more transparent, faster and fairer financial system
Many consider blockchain and cryptocurrency alternatives to the conventional financial system that revolves around third-party intermediaries. When processing transactions, some of these brokers may cause some investors to wonder if this is the best way to handle large amounts of money.
Therefore, instead of placing all your trust in one or several intermediaries, you have a better option. You can participate in the financial markets from anywhere and process your transactions without the involvement of any intermediary.
- An inherently secure blockchain technology
Let’s be honest! Cyber cryptocurrency threats (such as crypto malware) can allow unauthorized users to mine cryptocurrency on your computer or server. But here’s the thing! While this may be the case, the blockchain is an infrastructure that supports cryptocurrencies and protects them from hackers.
As a decentralized storage and data ledger, the blockchain tracks every transaction you make. Therefore, it is impossible to delete an entry made on the blockchain. Storing the blockchain in a decentralized way on numerous computers makes it even more difficult for hackers to access the entire string simultaneously.
- Cryptocurrencies Could Help You Beat Inflation
Another benefit of investing in cryptocurrencies is that this investment approach keeps inflation at bay. It is essential to note that these digital currencies are generally never tied to a specific economy or currency. Therefore, unlike printed currencies, whose prices often reflect domestic inflation, cryptocurrency prices reflect global demand.
But do cryptocurrencies experience inflation? Although cryptocurrencies also experience inflation, the good news is that investors can rest easy knowing that the number of coins available can hardly get out of control. That’s mainly because their numbers are usually limited. This phenomenon significantly exceeds inflation. For example, Bitcoin and many other currencies have a general cap.
- Crypto markets are open 24/7
Unlike banks, cryptocurrencies have 24-hour cryptocurrency exchanges. They are always open. Therefore, if you are always on the go, the recommendation is to give cryptocurrency a try. This investment route could be your best way to generate huge profits outside of the regular working hours that banks are used to.
In other words, you don’t have to wait for any exchange to start trading. You can mine coins and your transactions will be recorded at any time of the day or night.
What are the risks of investing in cryptocurrencies?
Today, the many unknowns that come with cryptocurrencies make investing in this digital currency much more risky than other forms of investment.
If you aspire to become a cryptocurrency investor, it is essential to be aware of the following risks;
The absence of a central cryptocurrency authority is an attraction for many. However, it attracts its potential investors to a high risk. Decentralization means that the cryptocurrency has no physical address or central authority. Usually, other financial institutions have an authority that resolves any problems with the system. In cryptocurrency, there is the absence of a central body that signals to resolve any dispute.
In some cases, governments have tried to step in to assert some regulatory power, but most of them remain decentralized to a system.
From one angle, investors cannot be held accountable to any institution. On the other hand, there is the possibility of legal complications.
The financial health of an asset is measured based on its volatility. Cryptocurrency is highly volatile, with prices fluctuating unpredictably.
Investing in something speculative introduces the aspect of volatility. Investment values are unstable and therefore sensitive to slight changes.
Some of the factors that make cryptocurrencies susceptible to volatility are;
- Uncertainties in policies and markets
- market sentiments
- The cryptocurrency environment
- Financial markets
- macroeconomic factors
Also, there is no intrinsic value attached to the cryptocurrency. Its value is based on people’s perception of it, such as how much investors are willing to trade.
- Cyber threats and insecurities
Cryptocurrency uses digital currency to trade in a digital environment. This phenomenon makes them automatically susceptible to cyber crimes. Some common cybersecurity concerns associated with cryptocurrencies are;
- Malware that allows unauthorized people to access cryptocurrency on someone else’s server.
- Phishing attacks in which hackers impersonate a legitimate company and send users links, asking them to take some action. That way, they gain access to users’ coins and can manipulate them.
- Using third-party software that exposes users to other cybercrimes
- Illegal trading platforms. Numerous future trading platforms need to be more reliable.
- Cryptojacking, where hackers break into a device and extract cryptocurrency without the owner’s knowledge.
- Fraud and Money Laundering
Cryptocurrency presents itself as an attractive platform for financial criminals. While this may not directly affect the host, it indirectly affects investors.
Investors caught in financial crimes may not have a legal option. This also represents a disadvantage for the decentralized state of cryptocurrencies.
As a currency that trades in a digital environment, it faces competition in its market. The competition is due to the different currencies or exchanges where these currencies are traded.
Using the network effect, you realize that the utility of a currency depends on the population adopting it, and the exchange becomes more liquid with an increasing number of buyers and sellers. In such a case, there is the dominant player with the most users. So a popular coin attracts more users and vice versa. Also, the popular exchange attracts more users, and the opposite is true. The winner eventually grows in popularity in the market, attracting more users.
Thus, existing platforms are facing competition with new trading platforms appearing daily. Depending on the platform you choose, you risk losing your investments. Also, depending on the exchange platform you choose, you are likely to lose the value of your currency.
Whether you buy these coins through an exchange or invest in a crypto company, it doesn’t really matter. Whichever strategy you prefer, remember to make sure you do your due diligence and shop wisely.