Crypto 101: Is Investing in a Cryptocurrency Worth It?
Crypto 101: Is Investing in a Cryptocurrency Worth It?
Investing in something new can be a hard decision,
especially when you’re dealing with money you’ve saved up or earned from previous investments. If you’re on your way towards financial independence, or if you want to grow your assets and your portfolio, you’ll likely want to know everything there is to know about a potential investment before you move your money. The same process can be applied to cryptocurrency, which a lot of people tout as something with huge potential in the market in the near future. And considering its performance in the market today, people may be interested in finding out just what all the fuss is about. If you want to get to know cryptocurrency on a basic level, this article is for you.
What is Cryptocurrency?
Before you think about investing in a cryptocurrency, it might help to learn what a crypto is and how it can affect you as both a consumer and an investor. In essence, a cryptocurrency is a cryptographically-secure digital currency. It’s a virtual asset built from blockchain technology, which makes it decentralized, gamified, and most importantly anonymous. Theoretically, crypto can’t be controlled by a singular entity or government because of its nature. As a kind of blockchain, cryptocurrencies have three (3) major components, all of which are its major competitive points in the market:
- Decentralization, where a bank or government isn’t needed to ensure that the crypto functions. This offers a great deal of financial freedom and democracy to users, as they decide what kinds of services and products they’re going to pay for.
- Gamification, where users have to collaborate to “check” everyone’s transactions for rewards. Cryptocurrencies rely on computing power to “solve” cryptographic puzzles that allow changes to be made in the currency. Collaborators in this regard earn a portion of that currency as a reward, similar to how experience points are shared in multiplayer games. Gamification of cryptocurrency motivates users to collaborate and ensure the survival of crypto for their benefit.
- Anonymity, where the robust security advantages of cryptography almost always ensure users of the cryptocurrency won’t be identified. And since all owners of the cryptocurrency will record all changes in transactions, anonymity is practically guaranteed.
Is it Worth Getting Into Crypto?
With the above in mind, it helps to identify whether or not these points actually matter when it comes to the full potential of cryptocurrencies. Is it even worth investing in cryptocurrency given its technical nature? It might help to check out both its advantages and disadvantages:
Advantages: Cryptocurrency makes transactions much easier and secure
People find cryptocurrency extremely appealing because of its potential to make digital transactions more accessible, much easier, and more efficient across different kinds of people. This can make credit more accessible to everyone. Here are other advantages:
- Get more control over your own transactions. Due to the secure nature of crypto as a form of currency, most – if not all – control over what happens to your cryptocurrencies fall under your control. This means no legal representatives, no agents, and no brokers will be required – no commissions, brokerage fees, paperwork, and complicated things that might otherwise deter you from handling your own transactions. Crypto essentially “cuts out the middleman” and as such makes transactions much easier to manage, audit, and clarify between parties involved.
- Democratize credit amongst a lot of people. According to some studies, around 2.2-billion people in the world have access to mobile phones or the Internet but at the same time have no access to traditional systems of exchange or banking. This is a lot of wasted potential in the market, and this is a lot of opportunities wasted on the part of consumers to take advantage of credit and investment opportunities. Since crypto needs to be handled on a digital medium, a lot of smartphone and internet users may be encouraged to participate and democratize the market. This is advantageous on an international level, as there’s no need for unnecessary levies, transaction charges, interest rates, and exchange rates.
- Secure and adaptable. Cryptocurrencies are, by nature, protected by strong cryptographic encryption. This practically secured transactions against account tampering and fraud. At the same time, this guarantees the protection of consumer privacy as well. Likewise, the advanced technology involved in the making of crypto also paved the way for “general-use” crypto and crypto used for specific purposes. The flexibility of crypto as a medium has led people to create around 1,200 unique variants of cryptocurrencies, some of which are cryptocurrencies programmed to be used for specific purposes and industries.
Disadvantages: It’s still relatively new in the market
Granted, cryptocurrencies have been around for quite some time in the market. Unfortunately, it’s not as exposed to the general public given the rather technical nature of the currency. Despite its advantages, the image people have of cryptocurrency remains as “that complicated market.” Unless this is removed, or crypto becomes more accessible, it can become hard for people to trust crypto at large. Here are other disadvantages:
- Lack of merchants makes crypto seem impractical. If we’re touting crypto as a form of currency, we should be able to use it in markets, right? Well, yes and no. Granted, we’re able to use cryptocurrencies in some markets and stores. Unfortunately, it’s not that “well-known” enough to be a widespread thing. This can make the idea of crypto investing a bit “off” for others, as while crypto is still unknown in majority of markets today, it’s really going to be beneficial as a form of investment. The good news here is that more industries have started to show interest in the potential of crypto as a form of currency – but it might be a long way to go for this to work out in the long run.
- Technical nature might turn off consumers. Unlike other forms of stocks and investments, crypto might perhaps be the most technical-intensive of all of these. And considering how trading in itself can be a niche activity, the kind of familiarity people will need before trading crypto might turn them off from the concept. Of course, learning about anything can be difficult at first – and in the case of crypto, the learning snowballs, the more people start reading about crypto. However, finding a good place to start and what to read next can be a bit overwhelming for beginners.
- Inconvenience in acquisition and maintenance. Building on the above, cryptocurrency can be quite a bit to handle for those who aren’t familiar with how blockchains and crypto work. For instance, if we do want people with better financial knowledge like our parents to handle cryptocurrency, they might be overwhelmed with what they have to study before even being able to handle crypto. Not only do they need to be familiar with an exchange, they need to have a wallet to maintain the crypto as well. If they want to earn rewards with mining, they also have to invest in a PC. These can be overwhelming for newcomers.
Conclusion: Worthy Investment, Considerable Risks
At the end of the day, it’s important to understand that despite the innate potential of crypto as a form of a financial asset, you shouldn’t solely rely on crypto for your portfolio. Like any other stock, you should diversify your crypto investments and make sure you study your niche enough that you know when to switch, pause, and even stop your investments entirely. While there are indeed a lot of advantages on crypto’s end, there are considerable risks from potential government intervention, how crypto in itself is used, and whether or not it can grow to be a reliable means of transactions in the future.
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