In here we share with you 8 Pros And Cons Of Using Cryptocurrency
Cryptocurrencies have the potential to reshape the financial world as we know it, and to question the very existence of traditional financial infrastructure. But what are the pros and cons of cryptocurrencies? How do you decide which one to invest in—or whether to invest at all?
If you’re a little confused by cryptocurrencies, don’t worry. We’re here to break down the advantages and disadvantages of cryptocurrency, so you can learn everything you need to know. And if you’re still stuck, check out our guide to Cryptocurrencies for Beginners.
Table of Contents
- What Is Cryptocurrency?
- What Does Blockchain Mean?
- How Many Cryptocurrencies Are There?
- Is Cryptocurrency Legal?
- Pros & Cons of Investing in Cryptocurrency
What Is Cryptocurrency?
Cryptocurrency, also known as “crypto”, is a digital currency designed to act as a medium of exchange and a store of value but, because it’s new, it’s more commonly held as a speculative investment asset.
Cryptocurrency uses blockchain technology to record transactions in a ledger system. The most important aspect of this technology is that it can be viewed publicly but it can’t be changed or controlled by any single entity, making cryptocurrency secure for online transactions and nearly impossible to counterfeit.
What Does Blockchain Mean?
A blockchain can be described as a digital ledger of transactions, which uses cryptography, a network of computers, and electricity to build blocks of data. This system of recording makes it difficult or impossible to change or manipulate the data.
How Many Cryptocurrencies Are There?
There are more than 19,000 cryptocurrencies in existence and dozens of blockchain platforms that exist. A blockchain platform, such as Ethereum, is the underlying technology that many of these different cryptocurrencies are built upon.
Is Cryptocurrency Legal?
Cryptocurrency is legal in the U.S., as well as most developed market countries, such as the U.K., Germany, and Japan. Some countries have either banned it or restricted its use. For example, China has heavily restricted Bitcoin use but has not made it illegal to hold bitcoins.
Pros & Cons of Investing in Cryptocurrency
There’s no shortage of financial media coverage on the rapid growth and popularity of cryptocurrency. But like other types of financial assets, there are some significant risks and disadvantages that come along with the growth potential and benefits.
Pros of Cryptocurrency
Annonymity and Flexibility
Cryptocurrency offers anonymity and flexibility, which traditional investments don’t give. When investing in other assets like stocks or gold, for instance, traders must declare their personal information and banking details. This is for identity verification but this practice also puts confidential data at risk. For this reason, many younger traders are drawn to crypto since you can even trade with just your crypto wallet number.
A huge benefit of cryptocurrency is its decentralized nature. Having no central authority, cryptocurrency cannot be manipulated or monopolized. Unlike traditional currencies which often have controlling entities and red-tape, cryptocurrency allows traders to equally access each token and currency movement. This means that so long as you have the capital and the time, you can have the same profitable opportunities without any third-party interference.
Easy of Access
Unlike other traditional investments, crypto investors have easy access to their investments remotely. Because cryptocurrency is a digital asset, crypto traders who want to check on their tokens only need to log into their crypto wallets or exchanges, and can do so anytime from anywhere with a stable internet. Because of this accessibility, any transactions are reflected immediately with little to no transaction fees.
Return on Investment
Although crypto can be very volatile at times – the long term trend has been positive. For example, Bitcoin was selling at roughly $300 in 2016. In the subsequent years, it has marched up to over $30,000 – a return of 10,000 percent. Whilst many experts suggest that the bubble will burst, the value of crypto continues to defy expectations.
Cons of Cryptocurrency
Conversely, digital currencies by nature are volatile. As we discussed previously in our post Are Cryptocurrencies Worth the Risk?, crypto does not guarantee profit and is subject to sudden dips in value. In fact, it’s not unheard of for cryptocurrency traders to lose significant amounts of money over a short period of time. Even leading coins like Bitcoin are subject to rapid valuation drops. Just this November, Bitcoin and other top coins dropped by over 5% over the course of a single day. In such cases, investors have no choice but to hold or sell at a lower price. Since many new crypto investors are day traders or those with more modest capital, having to sell or hold a token can mean ruining their investment strategy and delaying ROI (return on investment).
Lack of Security
Because it’s unregulated, it also doesn’t offer any safety nets for investors. This means in the event that your crypto investments crash or you get scammed or hacked, there are no contingencies for your benefit. Since crypto is also unregulated, governments and federal agencies can choose to suddenly prohibit or limit transactions. In these cases, local crypto investors have no choice but to give up or reduce their crypto transactions for smaller returns.
It’s still taxable
Despite the fact that crypto is unregulated, it’s still taxable in many countries like the United States, the United Kingdom, and Japan. Because any positive movements in crypto can increase a trader’s income, this automatically makes it part of their taxable income. Plus, should crypto be used to make purchases, it can also be susceptible to sales taxes.
Prone to Scams
With the rising popularity of cryptocurrency, there has been an equal rise in the number of scams as they look to take advantage of a booming market. According to the Financial Times, scams involving cryptocurrency cost investors $7.8 billion in total and roughly $3.2bn worth of cryptocurrency was stolen in 2021.