Cryptocurrency has shown the potential to reshape the traditional financial system.
Many people are investing in cryptocurrency, and this is increasing with each passing day.
Since its introduction, Bitcoin (BTC) has emerged as the world’s leading cryptocurrency by market capitalization. Experts estimate that over 10,000 cryptocurrencies are circulating in the market.
But are you aware of the advantages and disadvantages of cryptocurrency?
How would you be deciding which cryptocurrency is right to invest in or whether you should be investing at all?
If you are confused by cryptocurrency, don’t worry.
Let us break down the advantages and disadvantages of cryptocurrency so that you can learn some important things.
Understanding Cryptocurrency
Cryptocurrency is a digital currency that exists on blockchain technology. It is secured by cryptography that effectively minimizes the chances of fraud.
The transactions of cryptocurrency are quick and have lower fees as compared to bank transactions.
You can send or receive cryptocurrency anywhere at any time across the globe.
Cryptocurrency does not only work like an asset but also as a currency. You can use cryptocurrency to buy different products and for payments.
Carl Runefelt, alias, The Moon, is a global crypto leader who is pushing for the mass adoption of cryptocurrency.
He says, “Bitcoin is an inflation hedge. Bitcoin is a new form of money. I would say Bitcoin is the best form of money that humans have ever seen before. It’s the scarcest asset in the universe.”
Advantages of Cryptocurrency
While cryptocurrency is relatively a new type of currency, it is here to stay for a long time. From prospects of 24/7 trading on a transparent infrastructure and hefty returns, cryptocurrency has plenty to offer.
It all depends on how much you know to tap its advantages.
The Potential for High Rewards
Cryptocurrency was unknown to many when it was launched back in 2009.
But cryptocurrency has withstood the test of time and it a great potential for high rewards.
For instance – Bitcoin was traded for a few hundred dollars some seven to eight years back. But it reached the U.S. $64,000 by the end of 2021, which shows its remarkable growth.
On the other hand, the value of other cryptocurrencies like Ethereum (ETH) has also grown which shows huge growth potential.
Enhanced Security
Some of the benefits offered by cryptocurrency are associated with the infrastructure that supports it. That is blockchain technology.
The blockchain technology is a public distributed ledger that tracks every crypto transaction.
It works in a decentralized way and is stored across multiple computers; making it extremely difficult for hackers to access the entire chain in one go.
Bye-Bye Traditional Banks
By and large, the financial system revolves around third-parties intermediaries such as banks or the government.
This means that your wealth has a direct intervention from a third party.
Cryptocurrency, on the other hand, is a decentralized currency which means that it does not involve any third-party intervention.
You are the sole owner and manager of your wealth in cryptocurrency.
While talking about Bitcoin, Carl on his YouTube channel, The Moon, says, “I believe it will become the world reserve currency because it just simply makes sense. It is the best form of money in history in the history of money we’ve never seen a form of money that has been so scarce and so secure before and so easily transferable and easily divisible there’s nothing out there that can compete with Bitcoin.”
Disadvantages of Cryptocurrency
So, all this is a lot of glitters but is the outlook of cryptocurrency that good.
Let us look at some of the drawbacks of cryptocurrency.
Difficulty of Understanding
Mostly, people suffer losses in cryptocurrency because of their lack of understanding.
The technology of cryptocurrency is relatively new and is still shaping.
You should try to build comprehensive knowledge about cryptocurrency before investing in it as it is a risk to invest in something you do not understand.
Volatility
One of the major drawbacks of cryptocurrency is its volatility.
Since cryptocurrency is a decentralized currency, its value can fluctuate at any time.
The price fluctuation of cryptocurrency makes it vulnerable to stability.
But you can avoid crypto volatility by critically examining the trade charts of cryptocurrency and recent market trends.
Crypto is a Long-term Investment
While cryptocurrency has become popular around the world, most people invest in it to earn short-term gains.
Therefore, they suffer losses in cryptocurrency.
You should know that cryptocurrency is not a short-term investment but a long-term investment.
It is all about your patience.
Carl emphasizes, “When it comes to Bitcoin price predictions, I love to have a longer price or longer time horizon because for me, Bitcoin even though it’s fun to trade it in the short term if you really zoom out, Bitcoin is an inflation hedge.”
When you invest in cryptocurrency, you should avoid making decisions based on short-term changes.
Conclusion
Cryptocurrency can be a minefield for new investors.
From complex technologies to unfamiliar terminologies, it is a topic that takes some time to get used to it. Whether you want to invest in Bitcoin or any other cryptocurrency, you can learn from the advantages and disadvantages of cryptocurrency.
