With the Ethereum price today, cryptocurrencies could potentially reshape the financial world as people know it and shake the foundation of the traditional economic infrastructure. From its humble beginnings in 2008 after the development of Bitcoin, the digital currency has endured over the years.
Cryptocurrency refers to digital currency secured using cryptography. That makes it nearly impossible to counterfeit or double-spend. Cryptocurrency is not confined by any centralized financial institution or government entity. Theoretically, that makes it exempt from government interference or manipulation.
There are two sides to the cryptocurrency argument. Some skeptics firmly believe that digital currency is unstable and nothing more than a fad. On the other hand, some people firmly believe in its viability and heavily invest in cryptocurrency.
Because both sides make valid and factual points on the subject, it can be difficult for the uninitiated to decide whether to invest or not. This article aims to shed some clarity for newcomers to the crypto market by talking about cryptocurrency's good and bad points.
What are the advantages of cryptocurrency?
Cryptocurrency is a relatively new innovation that is becoming more popular and viable every day. Many people believe it garners attention because of the high value of cryptocurrencies like Ethereum and Bitcoin. However, another reason cryptocurrencies are so popular is their many benefits.
From seamless transactions to advanced security measures for your investment, cryptocurrencies have many advantages. Here are the top 3 benefits of cryptocurrencies.
High reward potential
Today there are hundreds of cryptocurrencies in the market, each of which has specific quirks. What these cryptocurrencies have in common is they all tend to spike dramatically and violently drop in value.
Two things primarily drive the prices for these cryptocurrencies. These drivers are the supply of coins that come from miners and the demand for these coins by buyers. Essentially, the supply and demand dynamics for cryptocurrencies result in massive returns.
If you take Bitcoin as an example, its value took a significant dip in 2018 but skyrocketed by the end of 2021. That would have resulted in a hefty payout for people who invested in Bitcoin in 2018 and then sold their assets in 2021.
Blockchain technology
Another significant advantage of cryptocurrency is the innovative infrastructure that supports it known as the blockchain. The blockchain refers to the data storage ledger used to track all transactions that occur within it.
The moment a user generates an entry into the blockchain, there is no way to erase it from the system. Additionally, the blockchain has decentralized storage across hundreds of computers, which makes it impossible for hackers to access the whole chain.
Freedom from traditional banks
Arguably one of the most excellent selling points for cryptocurrency investment is the prospect of a more transparent and fair financial system. The typical financial system today revolves around third-party intermediaries who process every transaction.
That means you place great trust in these intermediaries every time you make a transaction. Since the recession of the first half of the 2000s, many people question if giving their confidence to third-party intermediaries is a good idea.
With blockchain technology, cryptocurrencies can provide users with an alternative. These transactions can be viewed from anywhere by anyone. That allows users to participate in financial markets and make transactions without involving intermediaries.
What are the disadvantages of cryptocurrency?
While cryptocurrencies certainly have some revolutionary benefits, it also has their fair share of drawbacks. Some of these issues are easily fixable, while others are out of the user's hands, which helps to keep these drawbacks in mind. Here are the top three problems of cryptocurrencies.
High-risk investment
While cryptocurrencies tend to spike ridiculous highs at record speed, they can crash into crippling lows just as fast. That is why cryptocurrency may not be the best choice for investors looking to make stable returns.
The crypto market thrives on speculation, and its relatively small size makes it more vulnerable to prices fluctuating erratically. Most people view investing in cryptocurrency as a high-risk, high-reward gamble, making its volatility the most significant disadvantage.
Scalability issues
While digital currencies perform at lightning speed, they only do so up to a certain point. At one point, they eventually run into severe problems that make rolling them out on a large scale difficult.
Even cryptocurrency providers admit that scalability is a recurring issue. A perfect example is Ethereum, where the people behind it stated that the digital currency had reached certain capacity limitations. As a result, this issue has slowed the rate of transactions that can be processed.
Security vulnerabilities
Cryptocurrencies may not have the same risks from utilizing central intermediaries, but that does not make them immune to security issues. As a cryptocurrency owner, you are still vulnerable to security risks like losing private keys, hacking, phishing, and other cyber attacks.
Seasoned investors in cryptocurrency are more vigilant and aware of the many ways cybercriminals can steal their coins. However, the same story cannot be said for amateur investors who are still learning the ropes.
To invest or not to invest?
As mentioned, cryptocurrency investments can be extremely lucrative yet highly dangerous. Is it a good idea to invest? The short answer is it ultimately depends on the person investing.
Investing in cryptocurrency takes careful attention to security measures and effort in studying its value trends. The rewards are worth the risks for some, but they might not be the same for others. If you are unwilling to take risks and put in the work, cryptocurrency may not be an investment idea for you.