What are the pros and cons of Cryptocurrency? Is it a secure way of transacting online, or even a great addition to your investment portfolio? Read on to get all the answers you seek.
The world is changing, and many transactions are taking place online. Such changes have created room for a new means of exchange – Cryptocurrency. Cash and credit cards are no longer the only purchase options for goods and services, as Cryptocurrency gains momentum.
With this new type of online currency, you get not only a secure means of transaction, but also a way of increasing your investment portfolio. Cryptocurrency allows you to reap the benefits of the fluctuations experienced in online markets.
However, it’s wise to take time and understand what Cryptocurrency is. Then, armed with that knowledge, you can choose to use it or invest in it.
Table of Contents
What is Cryptocurrency?
Before delving deeper into Cryptocurrency, it’s better to understand the Blockchain concept. That way, you can be armed with ample information to make wise investing decisions.
As many more operations move online, there’s been a necessity for a better means of exchange. Unfortunately, cash isn’t the best way to transact when dealing with numerous platforms. That necessity saw the rise of Cryptocurrency – a new form of secure digital currency.
Once the idea was conceived, there was a need for technology to make this means of exchange a reality. The technology is what is known as Blockchain. Blockchain isn’t in one central place. Instead, it’s decentralized and keeps track of all transactions done using Cryptocurrency.
The whole concept of Cryptocurrency began with David Chaum in 1983. He came up with a form of e-money that was later upgraded to Digicash in 1995. Later, Bitcoin became the first form of decentralized Cryptocurrency in 2009.
Since then, there are more than 10,000 cryptocurrencies in use online. All these are traded publicly after the Initial Coin Offering (ICO). Many people are turning to it as a form of investing.
Who Should Invest in Cryptocurrency? Who Shouldn’t?
Many people are seeking ways to diversify their investment portfolios. It’s why options like Cryptocurrency are so alluring. But, it’s not that easy to make a profit from it as a form of investing.
Cryptocurrency can only generate profit as an investment if someone else pays more for it. It’s not straightforward and can land you in hot soup. However, that doesn’t mean it’s not a viable investment option.
People, who are interested in investing, should first understand the pros and cons of Cryptocurrency. Armed with proper knowledge, you can add it as another investment product to your portfolio. But, be willing to lose as you hope to gain.
Therefore, take time to analyze your finances. Are you in a position to lose the money you want to invest in Cryptocurrency? If yes, then go for it. If not, find another safer option or set up a business instead.
There’s increasing debate about the safety of cryptocurrencies. So, it’s better to know this information first hand before investing lots of money in it. It’s quite a volatile option.
Opposition Facing Cryptocurrency
Despite being in the market for over a decade now, Cryptocurrency still faces strong opposition from various quarters, including:
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Governments
Before delving into the pros and cons of Cryptocurrency, it’s better to look at why governments oppose it. Since its inception, there have been different measures to curb the increasing use of Bitcoin and other forms of Cryptocurrency across the world.
The reason being, Cryptocurrency isn’t a centralized form of exchange. Instead, it focuses on decentralization, which is where the governments come in.
As a means of exchange, it gets rid of the governments’ central control and eliminates the middlemen. That has many governments afraid of the future.
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Businesses and Consumers
Though some businesses are accepting Cryptocurrency like Bitcoin as a mode of payments, some are still hesitant. The lack of trust stems from a lack of knowledge and understanding. While there’s so much information about Cryptocurrency online, very few businesses have taken time to learn and understand the dynamics of Blockchain technology.
Not to mention, there’s widespread misinformation that has many business owners fearful. This fear will only keep many in the dark.
Also, this applies to consumers who don’t understand how Cryptocurrency works and are, therefore, hesitant to use it to pay for goods and services.
What are the Rewards and Risks of Cryptocurrency?
One of the major rewards includes embracing modernity. Any country, business, or consumer that embraces Bitcoin and other crypto coins is seen as modern. This is the future of exchange, and those taking time to learn will lead.
However, a risk worth noting is volatility. Lack of accountability due to decentralization is a huge red flag for many. Money is a sensitive matter, so it’s not easy to change people’s minds about what they know. Word is already out about the uncertainty of Cryptocurrency, which is why many people keep away.
But, you can still give it a try as another investment product and learn. All you need is to have a clear understanding of the main pros and cons of buying Cryptocurrency, do as to make informed choices.
How Much Do You Need to Invest in Cryptocurrency?
For beginners, a smaller amount is recommended. For instance, have a look at your investment capital. As you try and diversify your portfolio, it’s safer to allocate 5% to cryptocurrencies like Bitcoin. That leaves you a large sum to spend on other investment products.
Alternatively, you can invest 30% of your investment capital after weighing the pros and cons of Cryptocurrency investment. It’s riskier, but the returns are better if all goes well.
Only professionals who understand how Cryptocurrency works should invest more than 50%.
One area to start learning about Cryptocurrency is studying the different coins. Afterward, you can pick the ones to buy using the amount you allocate from your investment capital.
How Many Crypto Coins are There?
As of January 2021, there were more than 10,000 Cryptocurrencies available. However, only a handful remains popular among investors. Bitcoin leads the pack since it was the first-ever Cryptocurrency used online.
The main difference between Cryptocurrencies is their value. Value depends on how many people are buying and selling the currencies.
For instance, many people trade on the top ten Cryptocurrencies. There are also different pros and cons of each Cryptocurrency.
These top 10 include:
- Bitcoin
- Ethereum
- Litecoin
- Cardano
- Polkadot
- Stellar
- Binance Coin
- Tether
- Chainlink
Before you invest in any of them, you should fully understand the pros and cons of investing in Cryptocurrency.
Top Pros and Cons of Cryptocurrency
Now that you have a bit of knowledge on what Cryptocurrency is and how it works let’s get into what makes it good or bad.
Pros of Cryptocurrency
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User Protection and Privacy
The whole concept of cryptocurrencies is to protect the user and keep their information private. No one can know who you are if you don’t want them to know. Such security is a fundamental part of cryptocurrencies, plus the resulting anonymity.
At the same time, it’s why governments are resisting the advancement of Bitcoin, among others. Transaction details aren’t available to authorities who want to access them. The information of transactions is available, but no one can know the persons involved.
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Not Affected by Inflation
Every other currency in the world has faced a loss of value due to rising inflation. It’s only Cryptocurrency that remains immune to this fact. Cryptocurrency achieves this by fixing a certain price for each coin that is released.
The fixed price guarantees that it can only increase in value and not decrease. Since there’s a set limit for each Cryptocurrency released, a rise in demand results in an increase in value. In turn, inflation can’t affect it.
This is why many people are learning more about Cryptocurrency. It’s a better means of exchange and investment products. When you get it right, you can increase the value of your portfolio while earning a good profit.
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Eases International Trade
Only a few countries like those in the EU share a common currency. It makes it easier to trade across borders. However, international trade is much harder when each country has a different means of exchange.
At times the lower value of one currency can make goods or services expensive. However, the value of Cryptocurrency remains constant across borders. It exists online and therefore not subject to forex highs and lows.
That means you can pay a specific amount for a product no matter what country it originates from. Cryptocurrency eases international trade because there’s no fluctuation in currency.
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You Are in Charge
Picture this: when you deposit funds in a bank account, you are no longer in control. If the bank closes tomorrow, chances are high you’ll lose the money. Such delegation means you lose absolute control over your funds which has many people worried about dealing with banks.
It’s why Cryptocurrency is co appealing to many. You are the steward of your wallet. The only way another person can direct it is if you permit them to do so.
Otherwise, there’s no day any other person will close your account suddenly for one reason or the other. That plus transaction privacy is a plus for many people transacting online.
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Crypto Mining can Earn you Money
Apart from buying Cryptocurrency, you can mine it. In a nutshell, this involves keeping Blockchain transactions secure. In turn, these transactions are validated.
If you have access to a computer and reliable internet, you can do this. But there are certain requirements that you must fulfill. Also, think it through before you delve into crypto mining because it carries some risks.
Still, you can earn some good money from this and even turn a profit. The total crypto limit that gives them value is what makes crypto mining profitable.
For instance, many people are involved in Bitcoin mining since it’s the leading Cryptocurrency in circulation. However, there are still numerous pros and cons of Cryptocurrency mining. So, make sure you have all the necessary information.
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Innovative Ideas
Innovations are possible once other people see concepts like cryptocurrencies succeed. Therefore, consider how great the idea is as you weigh the pros and cons of Cryptocurrency.
For instance, many people have come up with different coins and concepts thanks to the rise of Blockchain technology.
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Data Mining Saves you from Transaction Fees
Every time you use your debit or credit card, the bank or service provider takes some transaction fees. After a year, this amount can be quite high. But is there any way to avoid transaction fees and save your money?
Yes, by using Cryptocurrency to transact. Data miners who safeguard your transactions get compensated for their work. In turn, you don’t incur any transaction fees when you purchase a product or pay for a service.
The only time you pay extra is when there’s a third party involved. Often these are people who you give access to your wallet to manage.
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Instant Payments
At times, making payments can be a nightmare. It takes too long for the funds to exchange hands, especially when it’s an emergency.
However, with Cryptocurrency, the transactions are instant. You are in charge of your wallet so that you can authorize the transfer in seconds. The recipient doesn’t need to wait days to receive the funds in exchange for goods or services.
Such efficiency has many people willing to transact with Cryptocurrency. Businesses now have it as a form of payment together with others.
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Attractive to Customers
More customers are gravitating towards online transactions and need more efficient ways to pay. When you accept Bitcoin, for example, you can attract new customers. Your business is more modern and a better option for customers who don’t want to spend a lot of time transacting.
At the same time, Cryptocurrency attracts many investors because it’s profitable. You can make some good money when you understand how it works.
See related: How to Invest in Wind Energy | Best Wind Stocks
Cons of Cryptocurrency
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Jaded Legality
As much as many people now use cryptocurrencies such as Bitcoin, there are still widespread calls to make it illegal. Governments are the leading voice because they see it as a less secure means of transacting. Yes, some people still use the coins but with an air of caution.
Cryptocurrencies are new and innovative, but a lack of regulation makes them dangerous. Many have lost entire life savings due to this investment, making many countries approach it with caution. Cash is still the best means of transacting for a majority of the global population.
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Increased Illegal Transactions
Security and privacy clash as you compare the pros and cons of Cryptocurrency. On the one hand, it’s a new age where people can transact anonymously. No one can see who made the transaction, thus protecting their privacy and security.
But that can be a bad thing too. There’s a rise in illegal transactions across the world. Criminals are hiding behind Cryptocurrency to launder dirty money. That lack of accountability and transparency has the authorities worried.
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Not Completely Decentralized
Cryptocurrency creators and companies retain some form of control. It means such coins aren’t as decentralized as it’s widely known. These entities still control how many coins are in circulation plus many other aspects of Cryptocurrency.
It creates a huge loophole where a fraudulent creator or company can reap people off or manipulate the coins. Even the most popular coins have had cases of manipulation. It’s why investors need to approach Cryptocurrency with caution.
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Hacking Is Possible
One advantage of Cryptocurrency is the fact that you are in charge of your wallet. A third party can’t manipulate your account. But that isn’t entirely true.
Cryptocurrency wallets are susceptible to hacking. When a hacker accesses your account, they can drain all the coins leaving you with nothing. Though many creators are vamping up security, there’s still a huge possibility of hackers getting access to wallets.
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Not Widely Accepted
It’s not wise to put all your money in Cryptocurrency since not all vendors accept it as a form of exchange. It’s had to transact with entities that haven’t embraced Blockchain technology.
So have some cash around if you need certain products or services that only accept cash as a form of exchange. If not, you might have to forgo the purchase.
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Cryptocurrency Mining Isn’t Eco-friendly
The world is facing growing climate change that is affecting many lives. As a result, there’s a widespread call for more eco-friendly activities like cutting down on energy consumption.
But, that doesn’t work with crypto mining. It requires lots of energy to power computers used to mine crypto coins. Such continuous use ends up affecting the environment. In countries where electricity production leads to lots of carbon emissions, this is a growing problem.
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Can’t Ask for a Refund or Cancel Transaction
Many online transaction providers have a cancellation and refund policy in place. If there’s any dispute, the sender can receive their funds back. That protects businesses and buyers from fraudulent transactions that are widespread online.
However, when you authorize a payment from your wallet, there’s no refund. The same applies when you send money to the wrong person. There’s no way you can cancel the transaction or lodge a complaint when they refuse to refund it.
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Lack of Inflationary Value isn’t a Good Thing
Picture the valuable antique you bought a long time ago for a couple of bucks. The only way it gained value is through inflation and limited supply. The laws of supply and demand create value for a product or service through inflation.
So, while Cryptocurrency isn’t affected by inflation, that isn’t always a good thing. It means specific items won’t have any significant value in the future as you had expected.
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It’s Risky
Cryptocurrencies aren’t bulletproof. There are still lots of risks involved in it as a means of exchange and investment product. There’s no way to hold crypto creators and companies accountable. Not to mention it’s a high-risk form of investment for beginners.
So, it’s better to take it with a grain of salt. Diversify your investment portfolio and only assign a specific percentage of investment funds to cryptocurrencies. That way, you can learn and see if it works for you or not.