Cryptocurrencies can reshape the financial world and call the traditional financial infrastructure into question. But what are the advantages and disadvantages of cryptocurrencies? Which one should you invest in, or even whether you should invest at all?
Don’t worry if you’re confused by cryptocurrencies. We’re here to help you understand the benefits and drawbacks of cryptocurrency so you can make an educated decision when investing in it.
High risk—and the possibility of high reward
There are over 10,000 different cryptocurrencies available for purchase right now, and each one comes with its own set of peculiarities. However, all cryptocurrencies share a few characteristics, such as their proclivity for sudden price increases (and decreases).
Prices are mostly determined by how many coins miners make and how many people want to buy them. And the supply-demand dynamics can lead to substantial profits… The cost of Ethereum, for instance, roughly doubled between July 2021 and December 2021, yielding a substantial profit for early investors.
The cryptocurrency’s underlying blockchain technology is inherently secure
In fact, some of the most significant advantages of cryptocurrencies aren’t even directly related to the underlying digital currencies.
That’s the blockchain, the decentralized data storage ledger that keeps track of every transaction that happens on it. Once you add something to the blockchain, you can never take it out again.
No hacker will ever be able to gain access to the entire blockchain because it is stored on multiple computers and cannot be accessed all at once.
Good-bye to traditional banks
Most of our financial system is made up of third-party middlemen who handle transactions. Because of this, whenever you complete a transaction, you are putting your faith in one or more of these middlemen, and the economic downturn that occurred in the early 2000s caused a lot of people to question whether or not this was a smart move.
Blockchain technology and cryptocurrencies provide an alternative. They are accessible to anyone, anywhere, allowing you to participate in financial markets and conduct transactions with no intermediaries. This can especially be seen in crypto casinos,
where they allow people to use cryptocurrencies instead of traditional currencies which has a lot of benefits. One of them being anonymity.
Understanding digital currencies requires time and effort
It can take some time to understand cryptocurrency. If you didn’t grow up with computers, you might find it hard to understand cryptocurrency, let alone the blockchain. Investing in something you don’t understand is a risk in and of itself.
Although many online resources can be used to your advantage (including N26’s blog series on cryptocurrency), you still need to invest some time to fully comprehend the benefits and drawbacks of investing in cryptocurrencies.
Investments in cryptocurrencies can be very risky
Prices of cryptocurrencies may shoot through the roof (with associated rewards for investors!), but they can also plummet to dizzying lows in the blink of an eye. So, if you’re looking for consistent returns, this may not be the best bet.
The cryptocurrency market relies heavily on speculative activity, and as a result, it is particularly susceptible to price swings. This can mess up the value of coins, which is one of the biggest problems with cryptocurrency.
Cryptocurrencies have yet to demonstrate their worth as a long-term investment
While cryptocurrencies have grown in popularity, it’s important to remember that they’ve only been around for a little more than a decade. Only in 2008, when a white paper on Bitcoin was published, did the concept begin to gain traction. Stock markets, on the other hand, can trace their roots back centuries.
For example, the London Stock Exchange was established in 1801. For millennia, gold has demonstrated its reliability as a store of value. But what about cryptocurrencies? The future of cryptocurrencies is unknown, and as an investor, you must be willing to take a leap of faith.