The influence of contemporary technology on the world of business has reached an all-time high. Recent years have seen the rise not just of digitized transaction methods, but also digital currency. Thus, if you’re still relatively young with some money to burn, you might find it worthwhile to invest in cryptocurrency. Just like the usual stock market, you can speculate on the value of altcoins in an exchange and realize a hefty gain.
However, as the saying goes, the bigger the gain, the higher the risk. Whether you’re a newcomer to the world of investments or a seasoned stock trader, it’s necessary to understand the risks and benefits of trading digital currency before putting even a single cent on the table. In this article, we’ve compiled a list of the most relevant crypto pros and cons to help you make smart investments.
Now that more people have begun to do business online, cybersecurity has become a paramount concern for businesses and customers alike. The blockchain technology that most crypto is founded on makes use of extremely complex encryption techniques to protect traders and their transaction information. Many crypto exchanges and reputable third-party providers also offer the option to store and trade coins from highly secure digital wallets. For instance, if you plan on trading in Monero, you might want to consider getting a dedicated XMR Wallet to make secure transactions and to safely store your coins. Lastly, the majority of crypto transactions take place under pseudonyms for an added layer of user protection.
One of the hottest selling points of crypto is that it isn’t regulated by external institutions like banks or governments. Some crypto backers argue, for instance, that this decentralization protects digital currencies from inflation.
Instead of being controlled by regulatory bodies, crypto’s value is determined primarily by the majority of users who own the coins. How much crypto is produced and how it is valued grows as supply and demand increase. That is, as more people make use of a particular cryptocurrency and more businesses accept it as a mode of payment, the higher that currency’s value is expected to rise.
Traditional business transactions most often require a middleman—say, a bank, a trading company, or a broker. Whatever the specific nature of the transaction, the presence of this middleman often introduces additional expenses and complicated paperwork to the process. Cryptocurrency transactions, on the other hand, are a simple, private one-on-one exchange between buyer and seller. On the whole, such transactions promise less confusion, lower transaction fees, and overall greater accountability.
No Market Hours
The cryptocurrency market, unlike the traditional stock market, does not adhere to any particular trading hours. Traders who invest in crypto have the convenience of being able to buy and sell coins at any time of day, any day of the week.
Hard for New Investors to Understand
The language around cryptocurrency is frequently riddled with technical and industry jargon. Because the technology is so complex, potential investors have to do a significant amount of research in order to invest intelligently and minimize losses. The difficulty of understanding and navigating digital currency, coupled with the relative simplicity of cash, can often deter newcomers from investing in crypto.
Because the value of crypto depends heavily on market activity, the cryptocurrency market often sees rapid gains and losses over relatively short periods of time. Unfavorable changes in the business environment, such as tax hikes and policy changes by companies, often cause sharp market downturns in just one day. Should booming businesses elect not to accept digital currency, for example, crypto prices can drop dramatically, leading to immediate losses of billions of dollars in value.
The decentralized nature of cryptocurrency, for all its benefits, also comes with its own set of difficulties, particularly when it comes to legality. Central governments and national banks, though they don’t regulate crypto, retain the authority to recognize it as a legitimate mode of payment. Hence, whether or not operational businesses within a particular country can even accept crypto payments still depends on these entities. The national government of Turkey, for instance, recently elected to ban all crypto payments in light of the Turkish currency crisis. This led to the collapse of multiple crypto exchanges and around $2 billion in losses for investors.
Potentially Exploitable for Criminal Activities
For all that blockchain technology has frequently been touted as “unhackable,” the truth is any information stored online remains vulnerable to hacking. Dedicated and accomplished hackers study security technology at length in order to better exploit loopholes in its systems. No matter how sophisticated the technology used to protect your digital assets, a cybercriminal with enough know-how might therefore still be able to seize them.
Likewise, the decentralization of crypto also makes it an appealing resource for scammers. Because there are no supervisory institutions monitoring the production of crypto, it’s relatively simple for fraudulent developers to produce fake coins. They can then use these coins to rope unwitting investors into Ponzi schemes or similar scams.
When all is said and done at the end of the day, the question remains: should you invest in crypto? The answer depends in large part on how well you understand the risks and whether you think you can handle them. As with traditional investments, it’s important to read up at length on what you’re investing in. It would also be wise to pool together an emergency fund to cushion you financially in an emergency. Once you’ve equipped yourself with the necessary knowledge and financial safeguards, you’ll be that much more in control of any money you elect to invest.