Cryptocurrency has become a popular supplementary source of income and for some, a full-fledged profession. These digital assets have been reshaping the financial landscape, showing no signs of deceleration. Bankrate reports that over 21,000 distinct cryptocurrencies have emerged since the inception of Bitcoin in 2009.
While many may be enticed by stories of success in the crypto world, it is critical to be aware of both the benefits and drawbacks before entering the realm of cryptocurrency investment.
What is Cryptocurrency?
Cryptocurrency is a type of virtual or digital currency and is primarily used to make safe online transactions using encryption algorithms without any mediators.
Cryptocurrencies act as a medium for value storage or exchange, depending on a public ledger technology called blockchain. A blockchain is a virtual chain of blocks, each of which contains a set of transactions and other information. Once information has been added to the blackboard, it cannot be removed or replaced.
Advantages Of Investing In Cryptocurrency
Here are three main benefits to investing in cryptocurrency:
Central authorities (banks or governments) have no control over cryptocurrencies. This decentralisation provides a level of financial freedom and security, as transactions are recorded on a public ledger, reducing the risk of censorship or government interference.
2. Potentially High Returns
This may be an obvious advantage to some and is most likely why
Cryptocurrencies have shown the potential for substantial returns on investment, with some early adopters experiencing significant wealth accumulation. This asset class has historically outperformed traditional investments like stocks and bonds, attracting investors seeking substantial profits.
3. 24/7 Market
Differentiation from your traditional investments like stocks and bonds, where you can only operate in a time window. Cryptocurrency markets are open all day, every day. This accessibility allows investors to buy, sell, or trade cryptocurrencies whenever they want, even at p.m. on a Sunday.
It provides a great deal of flexibility for those with varying schedules or who just want to have a go as a side hustle after their nine-to-five.
Cons of Investing in Cryptocurrency
While it might look like a profitable hustle, it does come with risks, and before you begin to invest, it is important that you fully understand what you’re getting yourself into.
1. Cryptocurrency Scams
When entering the world of cryptocurrency trading, individuals often encounter the risk of falling prey to various scams. It is not uncommon for unscrupulous actors to take advantage of the relative newness and complexity of the cryptocurrency space. To protect yourself, it is vital to be vigilant and take precautionary measures.
If, despite your best efforts to avoid and protect sensitive information from a cryptocurrency scam, There are services such as investment fraud lawyers and established crypto scam recovery firms that specialise in recovering stolen funds and providing legal support.
It’s also not uncommon for cryptocurrency scams to be repetitive. Scammers have your information and will try their best to do it as many times as they can. This can be formally known as forex trading scams, so understanding the signs of a repeat scammer and passing all information to the authorities is crucial to yourself and others.
Cryptocurrency prices are constantly fluctuating significantly, creating opportunities for quick gains while also posing the risk of substantial losses, especially during price drops.
It’s important to remember that in the crypto market, prices can recover after declines, so impulsive selling during downturns should be avoided and research should be conducted frequently.
3. Time and Effort
Starting as a newcomer can be a time-consuming process. If you’re new to the world of cryptocurrency and just beginning to explore this interest, investing may be delayed, as substantial research is essential for minimising risks.
While numerous online resources are available to support your investment journey, it’s important to be prepared for significant investments before you can expect to see any returns.