Advantages and Disadvantages of Cryptocurrencies
The rise of cryptocurrency has certainly whipped up controversy in the past few years. Even today, there is still a multitude of individuals who believe that cryptocurrency is not considered a good investment due to its scalability and environmental concerns. However, it is also undeniable that many investors still reckon that cryptocurrency has a lot of benefits. That’s also why many major companies such as Starbucks and Paypal these days have also started accepting cryptocurrency as a form of payment method.
With all that being said, taking a side is hard. If you are still unsure whether you want to invest in cryptocurrencies, this article will definitely make it easier for you. Let's take a look at the advantages and disadvantages of cryptocurrency to help yourself decide whether you want to be a supporter of cryptocurrency!
Understanding Cryptocurrencies
Cryptocurrencies are digital or virtual currencies that rely on cryptographic technologies to function. They make it possible to make safe transactions via the internet without the involvement of third-party middlemen. The term "crypto" alludes to the encryption methods used to protect these entries. Cryptocurrencies can be mined, bought on cryptocurrency exchange platforms, or rewarded for labor performed on a blockchain. Crypto valuations are what render them attractive as trading and financial instruments. They are also utilized for cross-border transactions to a smaller extent.
Advantages
Protection Against Inflation
Inflation has prompted the worth of several currencies to depreciate over time. Pretty much every single cryptocurrency out there is introduced with a predetermined quantity at the moment of its inception. The quantity of almost any coin is specified in the source code. For example, there is a limited number of Bitcoins available around the globe. As a result, when demand rises, its value rises as well, keeping pace with the market and, in the long term, preventing inflation. Cryptocurrency may even be seen by fund managers as a stronger inflation hedge than gold.
Potential for High Returns
There are about 20,000 cryptocurrencies on the market now, each with its unique set of characteristics. However, most cryptocurrencies share a few characteristics, including the proclivity for abrupt price increases. The supply of coins from miners and the demand for them by buyers are the primary factors that influence prices. These supply-demand dynamics can provide substantial profits. When Bitcoin was first introduced in 2009, it had nearly zero value. It gradually grew to tens of thousands of dollars over the years. This equates to gains of millions of percent on average.
Available 24 Hours a Day for Trading
Another benefit that cryptocurrencies have over traditional financial institutions is that the cryptocurrency markets are constantly open. In the example of the New York Stock Exchange, stock markets are only accessible on weekdays between regular business hours of 9:30 am to 4:00 pm Eastern Time. Cryptocurrency markets, on the contrary, are open for business 24 hours a day, seven days a week. An electrical outage, unstable network, or centralized exchange outage are some of the only things that may prevent an individual from trading cryptocurrency.
Instant and Easy Access
Cryptocurrency traders, unlike those who invest in conventional assets, have remote access to their funds. Cryptocurrency investors who wish to monitor their tokens only need to sign into their cryptocurrency wallets or exchanges, which they can do anytime and from anywhere as long as they have a steady internet connection. It's also a straightforward and quick procedure because you can effortlessly move cryptocurrency from one wallet to another without having authorization. To finalize the transaction, all you will require is another person's private key.
Disadvantages
High Volatility
The majority of cryptocurrencies, other than stablecoins like USDC or USTD, have a significant level of volatility. Since its value may fluctuate quickly and without warning, the timing of an investment is crucial. The volatility in cryptocurrency may be difficult to manage, especially for investors and inexperienced traders with little experience in the field. This can result in financial losses. Cryptocurrency's newness, according to analysts, is one of the numerous reasons for its volatility. All new ideas need time to integrate and gain acceptance, and cryptocurrencies are no exception.
Vulnerable to Cybersecurity Attacks
Cryptocurrencies are rather vulnerable to cybersecurity threats since they are digital technology. Many exchanges save clients' wallet data in order to accurately determine their user ID. Hackers and cybercriminals frequently steal such information, allowing them access to a large number of accounts. The hackers can quickly move funds from such accounts once they have gained access. Although major exchanges currently are quite safe, there is always the risk of a new attack. Mitigating this will certainly need regular security infrastructure maintenance.
Energy Consumption
Cryptocurrency mining and use necessitate a substantial amount of processing power and electricity, making it a very energy-intensive process. This is especially true for Bitcoin. It necessitates the use of technologically advanced computers and a significant amount of energy. A significant quantity of energy is required to power a single transaction. A single Bitcoin transaction consumes almost 2000 kilowatt hours on average (kWh). Some countries, such as China, have prohibited cryptocurrency mining in order to reduce energy consumption as the economy struggles to deal with the energy crisis.
Scalability Issues
The cryptocurrency scalability concern refers to the network's inadequate capacity to process massive quantities of transaction data on its system in a brief period of time. For example, blockchain-based technology handles nearly 7 transactions per second on average, but Visa processes nearly 1700 transactions per second. Cryptocurrency providers have also acknowledged that this is a problem. Scaling blockchain is unquestionably difficult, and this can be an unpleasant experience for transaction participants.
A Double-Edged Sword
With the advantages and disadvantages of cryptocurrency mentioned above, we can conclude that cryptocurrency is certainly a double-edged sword. Whether or not you want to invest in cryptocurrency purely depends on the type of investor you are. If you are looking for high-risk investments that can bring your high returns, then you should certainly consider venturing into cryptocurrency. On other hand, if you are a rather conservative investor, then you should continue doing more research on cryptocurrency before deciding whether it is for you.
Disclaimer: This material is for information purposes only and does not constitute financial advice. Flipster makes no recommendations or guarantees in respect of any digital asset, product, or service. Trading digital assets and digital asset derivatives comes with significant risk of loss due to its high price volatility, and is not suitable for all investors.