In recent years, the world of cryptocurrencies has experienced tremendous growth in popularity and awareness. More…
The pros and cons of cryptocurrency are important basic knowledge before investing. It is not logical that we allow the hype or criticism towards cryptocurrency to envelope us in a negative manner. It is best we learn and make the decision by ourselves.
Our previous post detailed the different types of cryptocurrency so that you will understand better how diverse coins and tokens operate in the crypto space.
A Brief History of Cryptocurrency
So, for a refresher, cryptocurrency is a digital currency with several purposes. It can be: money used to buy, assets for investments and it can also serve as data storage. There is no centralized authority that governs it.
One thing we are all warned about by experts is bad investments. In the broadest sense, when we decide to invest in assets, we invest not only our money but also our time and attention. We put our hopes into that investment and believe that it will change the course of our lives.
When cryptocurrency was publicly released, it was met with both optimism and skepticism, the latter pervades until today. Those who are continuously updated in digital finance were delighted with the potential of cryptocurrency in improving different aspects of our economy.
Before deciding on anything that will impact our finances, we need to fully understand first the pros and cons of cryptocurrency.
What Are the Top 10 Cryptocurrencies?
The numerous types of cryptocurrencies can really pique one’s interest. Also, the amount of circulating coins just keep increasing ever year. For this reason, potential investors should carefully examine the pros and cons of cryptocurrencies as a whole.
It is also important that novice investors look into the status of cryptocurrencies in different countries. Each country has their own policy about crypto. For instance, El Salvador and the Central African Republic are the only places that approved Bitcoin as a legal tender as of this year.
Whereas, Japan defines it as a legal property whereas China banned all cryptocurrency-related activities. The European Union legalized cryptocurrencies and subjects it to the Markets in Crypto-Assets (MiCA) regulation.
Some coins worthy of mentioning are Binance (BNB), Solana (SOL), Ethereum (ETH) and of course, Bitcoin (BTC). Bitcoin still holds the top spot as the favorite cryptocurrency of investor. These are coins that continuously work for progress just like Ethereum’s decision to use Proof of Stake and Cardano’s Vasil upgrade. Other coins worth knowing are Polkadot (DOT) and Chainlink (LINK).
Advantages and Disadvantages of Cryptocurrencies
What Are the Pros of Cryptocurrency?
- Cryptocurrency has a stable and secure network – the blockchain system’s design prevents fraud and theft from taking place. In particular, Its method of verifying transactions goes through a wide network of computers and is checked by experienced ‘miners’.
Satoshi Nakamoto is the inventor of the ‘mining’ process. The distributed ledger technology enables peer-to-peer validation and updating of records. But, only those who have private keys can access it.
- Some cryptocurrencies such as Bitcoin will have a limited supply. The limit of btc production is only 21 million bitcoin. Ever. This is one of the primary safeguards to avoid cryptocurrency from falling prey to inflation.
Additionally, unlike fiat currency that links it’s value to the nation’s economy, cryptocurrency’s value will depend on the people’s demand for it. Since the production of cryptocurrencies has a certain limit, there will be no excess in the market thereby preventing inflation.
- Decentralized currency means less hassle and lower fees – central banks charge several fees along with its third-party processors. In traditional financial institutions, sending money goes through a lot of channels that result in higher fees and longer transfer times. Cryptocurrency and its different digital assets offer ease of payment like credit cards and wire transfer with a faster transfer time and lower transaction costs.
While still considered as a newbie in the market, it offers high risk, with high rewards for those who are brave enough to grow their money by putting it into cryptocurrency exchange.
- Simplified and transparent transactions mean that people have greater access to it. Instead of relying on a middleman, you are responsible for the way you handle your finances for the long term.
You are also free to choose what kind of financial services you will avail. Also, this simplicity makes it easier to access. For example, you can transact with just your smartphone or tablet.
What Are the Cons of Cryptocurrency?
- Extreme highs and lows– it is common knowledge that any form of investment carries volatility with it. However, due to its unique form, cryptocurrency is well-known for achieving impressive prices but plunging at the next season. In Bitcoin’s case, December 2020 was its hallmark moment as it achieved $29,374 – the highest since it started out in the market.
In the early part of 2021, Bitcoin attained a price of over $64,000 but plunged to $30,000 in the next half of the year. If you aim for stability as an investor, cryptocurrency might not be the best choice.
- Complicated security mechanism– while cryptocurrency developers work hard to secure the safety of transactions, there is no back-up plan for users that might lose their keys to their encrypted wallets. Once the user loses their keys, they can no longer access their digital wallet. As a result, they lose their money along with whatever data they had in it.
- Environmental concerns– due to the intensive computer power needed and mining conducted to verify processes within the network, there is a need for huge amounts of electricity to keep up with these transactions that are taking place 24/7.
Many people express concern about how much electricity cryptocurrency that miners consume and how it eats into the power supply that other people are also tapping into.
- The decentralization of cryptocurrency makes it less prone to censorship and inflation. It is difficult to trace the wallet address that made or received btc and other cryptocurrency. Therefore, there is a possibility illegal transactions will hide their anomalies behind the blockchain technology through the manipulation of crypto assets. People who are experts in navigating the network can possibly hide the digital footprints of a cryptocurrency transaction.
If you are considering making an investment in cryptocurrency, it is best to read up first on the different kinds of coins and tokens. Each coin and token has its own purpose and feature. Furthermore, the makers of these coins and tokens have their own rules about buying, exchanging and investing.
The advantages of cryptocurrency are numerous for beginners who are keen on trying their hand in cryptocurrency. However, the disadvantages also serve as a warning that they should not to hold unrealistic expectations. Cryptocurrency is not a get rich quick scheme.
Newbies in the crypto market should always keep in mind the pros and cons of cryptocurrency. No financial system, whether centralized or decentralized, will be fully perfect. If we are aware of the pros and cons of cryptocurrency, we can protect ourselves from the risks that come with it.
Many swear that cryptocurrency is the future. Be part of the new brighter tomorrow by making wise financial decisions, Cryptobelivers! Believe in crypto!