The world has been exposed to cryptocurrency and blockchain technology since the invention of Bitcoin in 2009. On several occasions, cryptocurrencies are not potentially unswayable to intervention from manipulation from any officials since there are not offered by any central intermediary.
Cryptocurrency has the power to fundamentally alter the way that we think about finance and how the basic validity of established financial systems are been considered into question. For more insight into cryptocurrency, you can visit the previously published article (The Raise Of Bitcoin: Understanding The Basics Of Cryptocurrency).
There are different ways of getting cryptocurrencies, one can either purchase it, mine it, get it as an airdrop, or as a payback from performing tasks on the blockchain ecosystem.
There are so many confusions and arising questions among individuals about whether cryptocurrency is a good investment or not. Majorly, this is due to its volatility, hacks, scams, etc
In the subsequent paragraphs, you will be knowing about; the difference between traditional currencies (paper money) and cryptocurrency, the types of cryptocurrency, the pros and cons of cryptocurrency, does cryptocurrency is worth investing in.
Paper Currency (Traditional Currency) And Cryptocurrency
Fiat currencies are usually backed, controlled, and centralized by a government body. For example, in 1971, the United States Of America government terminated the swapping of dollars into gold. The worth of a fiat currency is always vouched for by the central bank and the government of a particular country. Blockchain-based asset usually known as cryptocurrency is used to represent value.
Comparing cryptocurrency to fiat currency, crypto operates using peer-peer which was made possible by the use of blockchain technology without the use of an intermediary.
Traditional money is usually issued by the government through the central banks. There are usually in circulation as coins or banknotes. Through the use of encryption techniques, crypto regulates the production of currency units. Digital currencies have no banknotes or coins therefore there can be transferred electronically which helps to enable fast transactions and cross-border ownership transfers.
Types Of Cryptocurrency
Due to the availability of many cryptocurrencies in the market, it is important to know the kind of cryptocurrency that an individual wants to invest in. This will help an individual to decide the future potentiality of his/her investment. A cryptocurrency with good utility is less risky free from the one without utility. Hence, the following are the types of coins available in the market.
Governance Token: these are tokens that represent voting or other rights on the blockchain. Example of the tokens that fall under this category are; $UNISWAP, $LDO, $AAVE, ETC
Platform Token: this kind of token is built to support applications that use blockchain. Examples are; $MATIC, $ETC, $ATOM
Utility: it serves as a specific function on the particular blockchain that there are built on. Examples of such coins are; $ETH, $XRP, etc
Transactional Coin: these are usually invented to be used to make payments. An example of such a popularly known coin is Bitcoin.
Shitcoin: this category of the coin is the most volatile and is also known as scamming coins. While investing in them, one needs to carry out deep investigations. Examples include; $SAFEMOON, $DOGELON MARS, $TARO, etc
Pros And Cons Of Cryptocurrency
- Transactions between two entities using cryptocurrency as the means of exchange are the fastest. An example can be observed in decentralized finance using flash loans. This loan does not require the use of collateral and can be carried out instantly.
- Over many years, the value of cryptocurrency market capitalization has surged, valued at $2Billion at some time. The market value of Bitcoin was around $540 billion as of April, this year.
- In a traditional institute, while carrying out a transaction, bank and credit card firms are always used as a third reliable party. Whereas in cryptocurrency, private keys and other incentive schemes like “proof of work” are been used to secure decentralized transfer.
- Every single failure can be removed with the help of cryptocurrency. In 2008, when the American banking institute failed, it caused global crises which spiral out of control. With the use of cryptocurrency, there is no longer room for failure.
- In cryptocurrency sometimes you can find out that only 150 addresses are having about 13% of the entire value and circulation of a particular coin ( $Ether for instance). While, the value of cryptocurrency is supposed to be divided among multiple parties on a blockchain, making them theoretically decentralized. Ownership is quite concentrated.
- There have become the popular tool that hackers use to steal individual funds for their criminal activities, such as; illicit purchases and money laundering.
- Many individuals think that cryptocurrency is a passing trend. This is because crypto has an unstable price due to its volatility. For example, last year November the $BTC price was above $60,000, unfortunately, the price fluctuated sharply to $20,000.
- The mining of Bitcoin is a particularly energy-intensive operation since it requires a lot of computing power and electricity. The main culprit in this case is typically Bitcoin, mining requires a lot of energy and sophisticated processing power.
Does Cryptocurrency Worth Invest In?
Despite some of the challenges faced by the crypto industry such as; the systemic risk posed by extreme volatility, regulatory ambiguity, hacking, etc investing in cryptocurrency is profitable IF you dedicate the time to learn and research about the market, its policies, or how it works.
Playing long and slow games is the best strategy for cryptocurrency investment. Avoid market short-term volatility as it is highly risky, except on the condition that you are a day trader.
This article is brought up to provide you with in-depth knowledge about the cons and pros of cryptocurrency. People are becoming more fascinated with the federal regulations of cryptocurrency and its present advancement.
Despite the challenges some individual is facing in the cryptocurrency industry, it doesn’t change the fact that one must ignore it potential advantages that it has brought and the different ways in which it has raised individuals from financial handicaps. In due time, cryptocurrency will be the masterpiece talk in the global financial institution due to its rapid adoption.
In this article, the advantages and disadvantages of cryptocurrencies, types, and examples have been discussed. Decide whether it is worth investing in.
PLEASE NOTE, THE ABOVE ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY. INVESTING IN CRYPTOCURRENCIES IS HIGHLY PRONE TO RISKS AND HIGHLY VOLATILE. ANY INTAKE, IS TO BE DECIDED BY THE INDIVIDUAL.