Cryptocurrency is a very divisive topic. The media loves crypto because it’s so easy to write scandalous clickbait-like titles. From huge frauds, scams, hacking exploits, crypto celebrities, to the NFT craze, ‘to the moon stories’, media has a field day with the controversy and volatility of cryptocurrencies.
On the other side, crypto bros, crypto enthusiasts seem ready to evangelize their interest vehemently. They speak about investment opportunities, future millions, trading strategy, and financial independence.
Pros and cons of investing in cryptocurrency
Cryptocurrencies indeed have the potential to disrupt many industries and reshape the world as we know it. Bitcoin was created as a response to the way central banks and governments handled the market crash of 2007. Today it’s a way to create new economies, new ways to generate and distribute wealth.
Namely, the way centralized monetary systems work is that government declares how much money is worth by arbitrarily managing interest rates and the amount of money in circulation. We are supposed to trust the government that they will fairly and responsibly control the money flow. That’s why the traditional currency is also called fiat (Latin for – so be it).
To make matters worse, banks are not required to fully back loans by assets, allowing them to create more money. Governments will bail out corporations and entire sectors, printing money and crashing its value.
Rebelling against all this, a group of computer scientists interested in cryptography tried to create digital money. There were a number of digital cash technologies. Then the idea was born that solutions to computational puzzles can have some value. Bitcoin was created as the first of cryptocurrencies, with scarcity in mind, to mimic gold. Even the process of creating a new bitcoin was named – mining, or crypto mining.
Advantages of cryptocurrency
Potential for high rewards
There are tens of thousands of new cryptocurrencies on the market today. Trading cryptocurrencies can be conducted in many ways. There are several different platforms, such as centralized exchange, decentralized exchange, peer-to-peer exchange.
New projects and networks create designed economies, with their own token economics (tokenomics), rules of generating and distributing wealth. Crypto coins a project mints serve as liquidity, governance, or method of capitalization. Initial coin offering (ICO) is similar to a company going public, as market participants can decide to buy, sell or swap cryptocurrency. The potential return of investment can be expressed in hundreds and thousands of percent. That’s why cryptocurrency can literarily make millionaires.
Blockchain technology is inherently secure
The underlying technology that supports cryptocurrencies is based on trustless network systems. Think of it as a public ledger that is immutable. Once the transaction is recorded on the block of data, it can be only changed if 51% of the network agrees, making them very safe against hacking.
Hence the word trustless, as you don’t have to rely on any central authority that dictates what’s the value of a cryptocurrency. Market, supply and demand, actual use case are what generate value rising the price of crypto.
Transparent, fast, and cheap banking system
Financial systems currently in place depend on many intermediaries. The central bank, intermediary banks, payment processors, third-party solutions, etc. Sending and receiving money comes with hefty fees, often in excess of 10%. This especially comes to play in cross-border payments where transactions are additionally burdened with international protocols, the disparity in currency, making transactions not only costly but slow. The entire process is, of course, not transparent. You have no idea what happens to your money once you send it.
Transactions on the blockchain are transparent, every transaction can be inspected. There is no need for intermediaries. Currency is exchanged in a matter of minutes. While preserving privacy. There is no need to disclose personal data to a third-party processor or a bank. If you know the crypto-address of a wallet – software which stores digital currency – the transactions can be conducted fast, safe, and cheap.
Crypto never sleeps
If you are interested in trading cryptocurrencies, you don’t have to wait for the exchange to start trading for the day. Crypto exchange works 24/7. You can actually generate returns outside normal working hours.
Accessibility and liquidity
A major benefit of bitcoin and similar cryptocurrencies is that it is a very versatile asset. You can treat it as currency, or as an asset, store of value, hedge. Yet it is always accessible, as it can be sold, exchanged to fiat currency, or another crypto in a matter of minutes.
Disadvantages of cryptocurrency
Steep learning curve
Cryptocurrency combines cutting-edge technology with the quite complex and abstract world of finances. It can take a while to wrap your head around it. If you are trying to invest in something you don’t actually understand, that can get you in trouble.
Crypto applications, digital wallets, crypto exchange platforms, and other software tools you will have to use aren’t (yet) created with the average user in mind. The interface can be confusing, clunky, or outright user-unfriendly.
Crypto exchanges often offer trading dashboards that are reminiscent of those used in forex or other exchange. So if you don’t know how to read the charts, or what technical analysis is, you can quickly get confused, lost, or worse – lose investments.
Cryptocurrencies are a volatile investment
This will change in time, down the road, but today and for a foreseeable future, crypto will be volatile. If you are looking for stable returns, crypto might not be your thing. Crypto markets currently thrive on speculation.
Crypto markets are highly susceptible to hype. Many projects thrive on hype and noise, but it can also be a coin-killer. One Twitter message from a crypto-influencer (we’re looking at you, Elon Musk) can skyrocket or crash a cryptocurrency.
Crypto investments are not insured or protected by Federal Deposit Insurance Corporation (FDIC). If a cryptocurrency you are holding crashes in value, that’s it, you lose. If the decentralized bank you’re dealing with runs out of liquidity, there is no government protection. While virtually impervious to hacking attacks, as a network, malicious coders can still target other vulnerable spots, especially with automated, code-based decentralized finance apps.
So always make sure that you are educated and informed about the world you are about to dive into. Never invest more than you are ready to risk. Stay safe and may you have a profitable day!