What is Cryptocurrency?
Cryptocurrency, simply defined, is digital money. It’s virtual, meaning it doesn’t exist in tangible form, such as coins or bills. Cryptocurrency is created, exchanged, and secured through cryptography. It’s decentralized, meaning it’s not regulated by any specific government or bank.
The first and most popular form of cryptocurrency is Bitcoin which has dominated the market since its creation. Other digital currencies, such as Ethereum, Litecoin, Ripple, and Zcash, have since entered the market and gained more traction and value.
What are the Pros and Cons of Cryptocurrency Investing?
The Pros
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Low Transaction Fees:
Bank fees can often be high and take a large chunk of the funds being transferred. With cryptocurrency investing, fees tend to be much lower to help cut costs. -
Potential for High Returns: Due to the volatile nature of prices in the crypto markets, investors have the potential of getting astronomically high returns over time.
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Increased Turning Time:
Transfers carried out using traditional banking services can take up to days to complete while transactions carried out using cryptocurrency only take minutes or even seconds. -
Limited Supply: Cryptocurrency units are created and can be mined, but with limited supplies, demand will ultimately increase, driving up the price of the cryptocurrency.
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Diversification: Cryptocurrencies can offer a great way to diversify portfolios and reduce risk.
The Cons
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High Level of Risk:
Cryptocurrency markets are very volatile in nature and investments can be lost at lightning speed. -
Price Manipulation: Investors need to be aware of “pump and dump” schemes and other types of manipulation which can impact prices of cryptocurrencies.
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Security Risk: With the lack of regulations, cryptocurrencies can be prone to theft, especially if they are held on unregulated exchanges.
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Lack of Regulation: There is currently no legal framework for regulating the crypto markets and long-term investors need to be aware of any potential changes that may affect their investments in cryptocurrencies.
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Limited Us: Cryptocurrencies are still not accepted by most vendors and merchants, so it’s difficult to buy goods and services directly with cryptocurrencies.
Cryptocurrencies are a relatively new form of digital money, with a wide variety of pros and cons that must be considered before investing. Pros include potentially high returns combined with low transaction fees and increased transacting time while cons include risk of manipulation, security risks, and a lack of regulations. It’s up to the investor to decide if investing in cryptocurrencies is right for them and their goals.