Considering Crypto? Here's What to Think About
The crypto world can be lucrative for investors, but no one should walk into the game blindfolded
Cryptocurrencies are the modern craze and solution to money, which is why and they've become wildly popular since their inception in 2009. Between 2012 and 2020 alone, Bitcoin has gained 193,639.36% and is set to reach new heights with market value of up to $23.3 billion by 2023. What's more, the amount of bitcoins circulating their way around the economy is up to a whopping 19,000 making the ability to scoop up your own easier than ever.
So with crypto set to stay in town, maybe you’ve been waiting in the wings for some time, and have decided there's no time like the present to dive into cryptocurrency once and for all. But before you do you need to assess the pros against the cons. Because truth be told, there are a ton of risks when it comes to cryptocurrency. So let's decode these digital currencies once and for all.
What is cryptocurrency?
Cryptocurrency is quietly (or not so quietly) revolutionising the way we use money. Cryptocurrencies are digital currencies secured by cryptography, making it impossible to create fake or duplicate them.
Most cryptocurrencies out there operate on a decentralised platform using blockchain technology. It’s a ledger that is dispersed across different computers in order to prevent any single instruction from manipulating it. And the best part? Cryptocurrencies are not monitored by any central authority – you’re free to send cryptocurrency directly to another person, without needing to use a third party, such as a bank, to process the transaction.
The first cryptocurrency was in 2009 with the inception of Bitcoin. Bitcoin's incredible rise to the top three currencies in circulation across the world has been remarkable to witness. Before credit cards and debit cards were available, people only had fiat currency to use for daily transactions. Nowadays, there are more than 1,800 cryptocurrencies such as DogeCoin, Ripple and Ethereum competing with Bitcoin along with traditional credit card transactions. It's quite a feat for an upstart like Bitcoin to climb the ranks of influential currencies alongside heavyweights like the US Dollar and Euro. Talk about disruptive technology!
How can I purchase crypto?
Thanks to modern technology, it's now easier than ever to own different types of cryptocurrencies. All you need is the right app. To get started, you'll need to sign up for an online account with a broker and pick from the many options available. Think of it like a credit/debit card that enables you to purchase cryptocurrencies in an easy and convenient way — no tricks or hidden fees involved. To make sure you get the best deal out there, be sure to do your research first and always read the fine print before clicking the 'buy' button.
Is crypto a good investment?
Let's start with the positives....
No fees, no-middleman
Say goodbye to traditional banking woes and fees - cryptocurrency opens the doors to a world of economic empowerment and accessible wealth. Without the need for a middleman, cryptocurrency enables users to buy and sell items at a fraction of their previous cost. This democratisation of money makes cryptocurrency an exciting prospect, with transaction fees that won't break the bank. While cryptocurrency may not be the easiest concept to understand, its ability to make economic access easier is undeniable.
Safe and secure transactions with blockchain technology
Cryptocurrency may have a reputation of being slightly mysterious and alternative, but what really makes cryptocurrency alluring is its blockchain technology. Blockchain is open-source software where anyone can see exactly how their money is moving around - transparency unstoppable by any institution or person. Ultimately it's like cryptocurrency has put an un-hackable document in charge, solidifying the trust and security of cryptocurrency transactions. So, technically cryptocurrency wasn't "alternative" to begin with - it just had some savvy people behind the scenes in charge of its success.
Increased uptake from businesses
More businesses are accepting cryptocurrencies as a legitimate form of payment. PayPal, KFC, Pizza Hut, Burger King and other companies allow customers to purchase goods with Bitcoin on their sites. Other businesses are likely to follow suit.
Cryptocurrency offers a unique way to diversify any investment lineup. By sprinkling your investment portfolio with a fresh asset class, crytptocurrency is one way to break away from traditional stocks and shares.
Now for the negatives....
"Whilst the pendulum swings in value can be good for day traders, it's certainly not for the faint-hearted"
Cryptocurrency is extremely volatile
Investing in cryptocurrency is no walk in the park, especially given how fickle its value can be. In just one day, Bitcoin's value dropped 30% and investors could expect on average a 4% change on a daily basis. So whilst the pendulum swings in value can be good for day traders, it's certainly not for the faint-hearted.
Value is only based on speculation
Cryptocurrency is probably one of the highest-risk investments out there Its value is highly dependent on market speculation. After all, cryptocurrency is only worth as much as people think it should be and that leaves very little security for investors. It's similar to the stock market in that way – both are driven by what people believe will keep the industry afloat. Remember, volatility is good news for short term investors who trade on a daily basis.
Varying levels of liquidity
It’s also important to remember that not all crypto investments are created equal. Some cryptocurrency options out there have higher liquidity than others, which could spell trouble when it's time for you to cash out your investment. To avoid any worst-case scenarios where you're stuck with your cryptocurrency and unable to sell out at the time you want, make sure to look into liquidity levels before investing so you know exactly what you're getting yourself into.
Crypto exchanges are prone to hacking
As cryptocurrency has exploded in popularity, so too have cryptocurrency exchanges become more viable targets for hackers and other criminals. Losing digital currency to a security breach can leave a bitter taste for investors, with the result often being sizable losses. That's why cryptocurrency exchanges are now increasing the amount of protection they offer in the form of security upgrades and third-party insurance providers. It's not just handy money-level tactics either - cryptocurrency holders should take a proactive approach to security by using two-factor authentication or adding extra passwords or phrases.
Changes in regulation
Crypto is here to stay, and it's drawing the attention of regulators. As cryptocurrency has proven itself to be transformational, governments around the world are beginning to recognise its role in not only the global economy. That said, regulators may intervene if cryptocurrency continues to be seen as a potential threat over an innovative technology.
Storing crypto isn't always the safest
With cryptocurrency, you can trade and exchange digital assets with relative ease, but it comes with its own set of complexities. Storing cryptocurrency safely? That's a whole new level of difficulty. It can be tricky to keep your digital funds out of the wrong hands, especially when you're dealing with an exchange like Coinbase that’s in charge of storing your cryptocurrency. You could always turn to a hardware or personal wallet if you want to keep things ultra-secure – just remember that it might be up to you and only you to keep an eye on those funds. On a serious note though, cryptocurrency owners should research their security options thoroughly before making any decisions.
Should I invest in crypto?
Cryptocurrency has been a hot topic lately, but should you really invest in it? Well, when it comes to cryptocurrency investing, there are no definite answers. As with all investments, cryptocurrency carries both risk and reward - it may be worth taking a look at cryptocurrency in order to diversify your portfolio and find creative new ways of building wealth. There is no guarantee that cryptocurrency will yield a high return on investment, but with its potential rewards and exciting nature come many possibilities. Investing in cryptocurrency may not be for everyone, but if you are an adventurous investor then cryptocurrency could be an empowering choice.
Questions to ask yourself before investing in crypto
Asking yourself the right questions when investing in cryptocurrency is vital for making a successful cryptocurrency portfolio. So, before you take the plunge, why not take a moment to reflect on some important queries.
Have you done enough research and understand the cryptocurrency market? How much of your own money are you prepared to risk? Are cryptocurrency investments right for your short-term or long-term financial goals?
Answers to these questions can help you make an informed decision and increase your chances of cryptocurrency success. Plus, with the right mindset and plenty of knowledge, investing in cryptocurrency can be exciting.