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Pros and cons of investing in cryptocurrency

Pros and cons of investing in cryptocurrency

Last updated 12th Apr 2022
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In the world, today cryptocurrencies, in particular, bitcoin, are fast gaining popularity. Cryptocurrencies are digital currencies that exist only in essence. They are yielded through encoding technology and it is this technology that is used to modulate bitcoin trading and subsequent verification of their transfer. The virtual nature of cryptocurrencies gives them autonomy and absolves them from any kind of regulation by the central bank. Many investors have taken advantage of this millennial milestone owing to its secure and transparent nature. However, not all of them share the same story as some have experienced losses while others have gained from it. This leaves us with the question, is cryptocurrency worth investing in?

One of the reasons why cryptocurrencies have gained global appeal is because of their secure nature. Cryptocurrencies are encoded into a database. For anyone to change a particular code the individual would have to fulfill certain conditions. These conditions revolve around public acknowledgment and it would, therefore, be impossible to alter any code or introduce a new one without it being traced back to you. Furthermore, the value of the coin is secured by encryption. The person who sends the coin possesses a private key that requires miners to work it out like a puzzle before the transaction is confirmed. This means that anyone who cannot work out this private key will not be able to access the coin. Confirmation of a transaction simply means that the transaction has been broadcast and it has received a node from other parties in the network. Failure to do so results in the breakdown of the system. According to Finanso, this is the manner that cryptocurrency exchanges gain their trust.

Advantagesof Investing in Cryptocurrency

Security

One of the reasons why cryptocurrencieshave gained global appeal is because of their secure nature. Cryptocurrenciesare encoded into a database. For anyone to change a particular code theindividual would have to fulfill certain conditions. These conditions revolvearound public acknowledgment and it would, therefore, be impossible to alterany code or introduce a new one without it being traced back to you.Furthermore, the value of the coin is secured by encryption. The person whosends the coin possesses a private key that requires miners to work it out likea puzzle before the transaction is confirmed. This means that anyone who cannotwork out this private key will not be able to access the coin. Confirmation ofa transaction simply means that the transaction has been broadcast and it hasreceived a node from other parties in the network. Failure to do so results inthe breakdown of the system. It is in this manner that cryptocurrency gains itstrust.

Legitimacy

Cryptocurrency trading draws its legitimacy from the unanimity of the participants in its network. It has gained global approval by most leaders as a legal medium of payment. This approval has particularly posed an advantage to investors since they are more likely to garner huge profits. Banks have also approved the use of bitcoins to make payments and have even relinquished their control over any transactions that involve cryptocurrency. This has given cryptocurrency independence. Owing to this independence, transactions made by cryptocurrency are much easier. This could be attributed to the fact that they do not involve long and tedious processes like other transactions that have to be sanctioned by the central bank. Even as more people continue to trade online, it is highly likely that people with bitcoins are the ones who will be better placed to reap maximum profits.

Lower transaction fees

No transaction fees are usually chargedfor transactions involving cryptocurrency. This is because minors who solve theprivate key of the sender usually get a reward and some compensation from thenetwork. This has made these transactions cheaper and more affordable andinvestors no longer have to agonize over high transaction fees that have beenimposed by other modes of payment. However, most investors tend to involvethird parties in bitcoin trading such as Coinbase to maintain their bitcoinwallets. In doing so, such third parties are likely to impose some fee which inmost cases is quite affordable.

Disadvantagesof Investing in Cryptocurrency

Cybersecurity

With the technological revolution, itwould not be strange for the technology behind bitcoins to be compromised. Thesecurity offered by encryption of cryptocurrency may be breached by hackers whoare always lurking for any point of weakness. This may end up costing investorshuge amounts of money because prices are attached to the currencies.

Virtual

Cryptocurrency exists only in essence suchthat there are no physical coins and notes. As a result, there is, therefore,no central place where the currency can be deposited for safe keeping. Thisbecomes disastrous in the circumstances of the system crashing. This is becauseit will be very difficult to recover any balance since everything will be lostas it was not tangible. Its lack of inherent value could also result inunpredictability in prices

Lack of regulation

As much as lack of regulation of bitcointrading by the central bank is advantageous, it also poses some disadvantages. Lackof regulation of cryptocurrency means it is not under any control orsupervision. This attracts more investors thereby increasing their chances ofinvesting in this technology. This is likely to lead to traffic in the networkwhich is likely to slow down transactions and even pave way for fraudulentactivities.

Speed

The time taken to carry out transactionsvia cryptocurrencies is relatively longer as compared to other means of paymentsuch as VISA. This could be attributed to the large number of participantsinvolved in the network. The buyer seeks to acquire coins that are already inthe network. The sender of these coins possesses a private key which must beresolved by the minor before the transaction is confirmed. Other parties in thenetwork also have to acknowledge this payment. All these processes take a relativelylong time as compared to other payment processes such as VISA and MasterCardwhich are faster.

It is therefore evident thatcryptocurrency has its hills and valleys. It is therefore upon investors tomake prudent decisions to experience the benefits that are conjured up bycryptocurrency. After all, the only limit to what one can achieve is hisimagination.

Staff Writer

Staff Writer