Tech

Pros and Cons of cryptocurrency investing

Cryptocurrencies have split the world since their arrival on the market: people who are skeptical of their benefits and confident investors. The public’s opinion has shaped the blockchain in some way, mainly because famous public figures have encouraged people to invest, leading some cryptocurrencies to boom overnight and then fall into a pit of darkness for a long time.

Cryptocurrencies seem unstable and uncontrollable at first glance. Since the cryptocurrency market is relatively new, people tend to doubt its safety. Still, the truth is that exchange rates behave similarly as there are risks involved in both transactional operations. Are cryptocurrencies better than fiat money? It depends, so let’s see what are their advantages and disadvantages compared with other transactional options.

Secure technology

Among the core principles of blockchains, digital trust is the most important as it provides encryption, transparency, verifiability and immutability. So, any blockchain transaction cannot be changed or erased, meaning that the blockchain is a highly secure and reliable store of data. 

Security also differs regarding the blockchain type:

  • On public blockchains, anyone can join and validate transactions by solving cryptographic problems;
  • Private blockchains are restricted and limited on who enters the network, but transactions are transparent and traceable to all users;
  • Permissionless blockchains have no restrictions on processors;
  • Permissioned blockchains are limited to users who are granted permissions through certificates;

Each type of blockchain has its advantages, so it highly depends if you’re investing individually or are part of an organization. Even though private blockchains are more secure for businesses, public networks are great for independent users.

Volatile market

One of the biggest risks of investing in cryptocurrencies is market volatility. The upward and downward movements make stocks more or less valuable, so it’s a constant race for investors to get the best deal. Although high volatility creates the possibility for high returns, it’s a matter of being fast and knowing when to sell and when to buy, as the rule of “buy low, sell high” is not a strategy for every situation.

Experienced investors may be able to notice opportunities. Still, less risk-tolerant investors must use some kind of strategy to limit the downside impact of volatility, such as the DCA (dollar-cost averaging). This method allows investors to buy a smaller amount of an asset over a more extended period, no matter the price. This method is usually used for investing in Bitcoin, as it’s one of the cryptocurrencies experiencing daily and even hourly price volatility.

If you want to know how to buy Bitcoin, you can choose between using your debit/credit card, bank deposit, P2P trading and third-party payment. Then you can simply store it in your digital wallet, trade it for other crypto or stake it for passive income.  

Decentralized market

The best thing about decentralized markets is that there’s no central authority to decide on future changes or rule the blockchain. The entire network is responsible for managing the blockchain, and decisions are based on the written program of the system. Decentralization has many benefits compared to a centralized and distributed system:

  • It provides a trustworthy environment as any member of the network has a copy of the exact same data;
  • It improves data reconciliation. A decentralized data store allows every entity to have access to a real-time, shared view of the data;
  • It reduces weaknesses. A decentralized network is not prone to systemic failures, like lack of sufficient incentives for good service or corruption;
  • It optimizes resource distribution to reduce the likelihood of system failures.

Irreversible transactions

Unfortunately, even if transactions are safe, they’re irreversible, meaning that if you send funds to the wrong person, you can’t recover them (unless they are willing to send them back). Plus, it’s also quite challenging to lose access to your cryptocurrency if you lose your private access key. So, to avoid the latest issue, it would be best to hold your private keys online, in a crypto wallet or even offline on a piece of paper.

This feature of the blockchain was intended to avoid double-spending, a common practice that everyone can experience with their credit cards. But lately, you can cancel any transaction and take your money back, so the irreversible feature of the blockchain might not come in handy anymore. 

Highly transparent

Blockchain technology provides a complete history of transactions within the network, meaning that users can track their data with complete transparency. The consensus protocols are made for nodes to verify any transactions, which allows the blockchain to be less prone to unauthorized data tampering. This technology ensures transparency through:

  • A complete auditable and accurate blockchain. Given that no one can manipulate, modify, or delete data, this automatic feature makes the process of manipulating transactions impossible.
  • Utmost security. Each information block is linked to all previous blocks, leading to an extremely secure block for data protection.
  • Complete traceability. This feature makes the blockchain easier to maintain and check because there’s an assurance of genuine and unbiased decisions regarding transactions and blockchain decisions.

Not widely accepted

Lastly, a disadvantage of cryptocurrencies is the fact that they’re only at the beginning of the road and are not widely accepted as payment options. Although many important companies have started accepting Bitcoin or Ethereum as alternatives, most businesses are afraid of this switch, even though many crypto users demand this change.

One of the reasons for peoples’ skepticism is that the blockchain can be quite difficult to understand, and you have to do plenty of research before investing, but also throughout time because many things change. Investors have to pay close attention to the coin’s volatility and make the right choice, otherwise, the risks can be pretty unpleasant.

Wrapping up

Cryptocurrency technology is here to stay, and it has yet to improve in order to become accessible to everyone. But the blockchain is constantly improved with the help of users and investors, and the disadvantages might disappear when new solutions are implemented. Regardless, there’s no better time to invest than now because even though the market is volatile, waiting for the perfect time might not always be efficient. 

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