Advantages and Disadvantages of Investing in Cryptocurrency
While many have criticized blockchain’s inherent vulnerability and insecurity, it’s rapidly gaining growing popularity as a viable method to enhance global remittance, while also increasing digital privacy. Some even consider it to be a milestone in internet security. But then, others worry that Cryptocurrency will create another problem altogether – one that will render it largely irrelevant. They say that because Cryptocurrency is open sourced and can’t be controlled or banned by any government, then anyone could break the code and use it to do whatever they want. To show the dangers of Cryptocurrency to those in the industry, here’s a look at some disadvantages and advantages.
One of the major advantages of Cryptocurrency is that unlike traditional asset classes like stocks and bonds, it doesn’t need to meet particular laws or regulations. Thus, there’s no need for protection from hackers. A hacker could break into your computer, but would be unable to access your funds since they wouldn’t need any sort of digital certificate to access your funds. Cryptocurrency works exactly the same. Transactions are secured directly between two parties thanks to strong cryptography and the distributed ledger technology behind the block.
Another advantage of Cryptocurrency is that it doesn’t rely on a central authority. Theblockchain technology doesn’t need any sort of government backing or regulation to stay alive and flourishing. Since there are multiple currencies running on theblockchain technology, there’s a lot of potential for competition among diverse currencies, which will ultimately serve to lower prices and increase liquidity.
Still another drawback of Cryptocurrency is that its underlying supply and demand dynamics aren’t fixed. The supply isn’t static, so if the number of users increases, so does the supply. This could lead to price volatility because as more Cryptocurrency investors decide to sell their Cryptocurrency, the supply increases. This would create an uptrend in prices as investors sell. The biggest issue with this kind of model is that it’s an assumption that investors will know how to find quality sources of Cryptocurrency. With little to no effort required by the investor, the value of Cryptocurrency will drop to zero and may never be seen again.
One last disadvantage of Cryptocurrency is the high level of risk associated with it. The high degree of risk is inherent in the nature of the model. Unlike traditional businesses or stock, the supply and demand of Cryptocurrency are uncertain. Thus, there’s no guarantee that the value of your Cryptocurrency will increase, remain flat, or fall in price. This inherent risk makes it unwise to put large amounts of money in the hands of Cryptocurrency investors who do not have a long-term strategy.
Overall, the greatest advantage of Cryptocurrency compared to traditional methods is the ability to leverage the value of your Cryptocurrency. Leverage allows you to invest smaller amounts of money than you would be able to on your own. However, the inherent value of Cryptocurrency is also what gives it its greatest appeal. The significant amount of control that a single investor has over their Cryptocurrency gives them significant influence over its price volatility. However, as with any investment, it’s important to research the market and to carefully consider if an opportunity to profit is worth the risk.