While most people spend so much time lauding cryptocurrency and its advantages, it is also important that we are fully aware of its drawbacks in order to avoid making mistakes. In spite of its popularity, some may still consider crypto as a speculative investment. Its volatile nature may be one of the reasons why investors are hesitant to adapt to the cryptocurrency market. Many traders turn to crypto media sites where experts make in-depth analyses, share tips and provide detailed price predictions – such as Cryptona.
What is cryptocurrency?
A cryptocurrency is a form of digital currency that uses cryptography and decentralised blockchain technology. These features are what makes this digital currency safe and secure. Blockchain technology serves as a public ledger where data and transactions are stored. In addition, cryptocurrency also utilises peer-to-peer networks – the sharing and storing of data and information from one computer to another, creating a chain. It has no central server and is not controlled by the government or any financial institution. Crypto coins are mined through the use of specialised computers or ASIC (Application-Specific Integrated Circuit) devices that operate by solving complicated algorithms or mathematical equations. For every problem solved of verified transactions, tokens in the form of bitcoins are rewarded to the miners.
Cryptocurrency, specifically Bitcoin, was invented by a person or a group of people masked under the pseudonym Satoshi Nakamoto in 2008. It was first launched in the market in January 2009. It was only mined by then until the year 2010, where the first purchase or trade occurred. According to history, in the same year, an anonymous person traded 10,000 bitcoins in exchange for two boxes of pizza. Since then, cryptocurrency is often utilised as a form of payment, and to this day, more and more merchants are beginning to adopt cryptocurrency as payment for goods and services.
Advantages of Cryptocurrency
Transactions with Bitcoin or cryptocurrency offer lower fees compared to traditional banks or financial networks. Crypto coins can also be used in international transactions since they can be converted to any international currency that you prefer to use.
Bitcoin’s blockchain technology offers a safer and more secure way to transact. It is considered transparent and can be easily traced. It is not regulated or controlled by the government or any institution. Cryptocurrency also operates without a central server. Therefore, it is almost impossible to cheat or hack the system as there is no target for a cyber attack.
Challenges in Cryptocurrency Investment
Volatility Risk. Bitcoin and others are known for volatility. Therefore, investment in cryptocurrency is riskier compared to other investments. In fact, if you try to look back at the history of Bitcoin’s price, there are numerous occasions where its value spikes really high and then crash down drastically.
For instance, Bitcoin’s price increased up to $20,000 in 2017, then without warning, it crashed down to $3,122 in 2018 and went up again to $62,000 in 2021. This only leads to greater profit or returns as well as huge losses.
As a cryptocurrency investor, you must be prepared mentally and emotionally. It is recommended to research first and start small.
Security Risks of Wallets. Many people find the anonymity of Bitcoin a great advantage. But there are also instances where it exposes you to greater risk.
There are two types of digital wallets where you can store your cryptocurrency asset. The first one is the hot wallet or an online wallet where you can gain access to your digital assets through the internet. The other is the cold wallet, where your crypto coins are stored offline or without the need for internet connectivity. According to users, online wallets are considered to be riskier and can be susceptible to hacking or theft. Anything that is accessed online can be vulnerable to cyber-attacks. On the other hand, the offline wallet is considered to be much safer. Crypto private keys can be printed and kept in a bank safe or a vault. Offline wallets can also be in the form of USB drives. But be wary since physical wallets can also be stolen as well as your computer hardware.
It Was Not Regulated. Cryptocurrency is known to be decentralised. It operates even without government regulation. This, in fact, can be an advantage to many users as government regulations give you confidence in your asset or ownership. However, some may find it a disadvantage that it can largely affect the unpredictability of its market value. There is also the possibility that huge taxes might be imposed upon government regulation. And lastly, due to its drastic price fluctuations, transactions and real-time amount can be difficult to track.
Intangible. Cryptocurrencies are known to have no physical form or attribute. An intangible currency can’t be used for purchases in physical stores. Otherwise, it needed to be converted to other forms of currencies.
Not Widely Accepted. Though thousands of merchants and retailers now accept Bitcoin as a form of payment, some companies are still hesitant to confirm. In addition, although you can convert Bitcoin to other currencies, some major countries banned the said cryptocurrency. It is also possible that some governments might not allow the use of Bitcoin for purchases so the transactions can be easily tracked. Unlike credit cards such as Mastercard and Visa, transacting with cryptocurrency may take you time and can cause inconvenience on your part.
Value Fluctuations. Fluctuations always come along with volatility. Remember that the value of Bitcoin is based on supply and demand. Therefore, expect frequent fluctuations according to demand. Numerous factors may cause cryptocurrency instability.
Uncertainty of the Future. Some people question the intrinsic value of Bitcoin. What kind of future is in store with cryptocurrencies? Some experts predict that despite the limited supply it has, its value will certainly increase as time goes by. However, some suggest that it won’t be as hype in the future as its current status.
Disclaimer: This article does not recommend Bitcoin investment unless you are willing to take risks. Bitcoin’s volatility may not be suitable for people who have a low-risk tolerance. Before you make a decision to give it a shot, you must research thoroughly, and most importantly, do not invest an amount you can’t afford to lose.
