Buying and selling have been around since the start. For the purpose of buying, currencies have been around throughout history. These have evolved from anything in the barter system, to wheat, coins made from out of precious metals, then money (coins and paper notes), and finally to digital (crypto) currency.
Virtual or digital currency is referred to as “cryptocurrency”. It is imprinted with unique codes called cryptography that protect it from counterfeiting and other problems. There are various cryptocurrencies in function around the world. all these have become a method of investment and making profits. Therein comes the dilemma of whether or not to make an investment in them. To answer this question, you need to understand its essential characteristics along with pros and cons. (In addition to that, you need to ensure that you or your business can afford such an investment. You can check out our bookkeeping services to understand your capacity.)
Cryptocurrency — Essential Characteristics
Cryptocurrency is different from the already in-use legal tender (i.e., paper money and coins) in more than the fact that it is virtual and digital. It encompasses a number of currencies (also called coins). These factors are simply its essential characteristics. These include:
- The majority of these currencies are not issued by any central government.
- They are immune to any interference by governments and other non-state organizations
- These currencies operate on their own using blockchain technology
- The dynamics of supply and demand are what set their costs and rates.
- Certain encrypted algorithms and cryptographic techniques avert fraudulent activities
Different Types of Crypto Coins
Different crypto coins are created to facilitate different functions. In this regard, knowing the coin’s concerning purpose can help with decision-making regarding which currency to pick. Also, the one in demand holds a stronger choice with investment.
Let us look into different types and their purposes. The prominent ones are:
These carry out specific functions on their concerned blockchains. XRP and ETH are major examples of utility crypto coins.
These are used as payment or transaction means. Bitcoin is the most common in this regard.
These coins facilitate voting for some matter on a blockchain. Uniswap is a well-known coin.
These play their role in applications built to manage blockchain. For these Solana is an important coin in this type.
These provide security of assets like stocks. MS Token is one such example.
Pros and Cons of Cryptocurrency
The decision of whether you should or should not invest in cryptocurrency depends on a number of different factors. A simple and easy way to understand these factors is by going through the pros and cons of cryptocurrencies. The article will consider both of these to give substantial information to make the right decision. To do so, the article includes these points separately.
The benefits of investing in cryptocurrencies cover these aspects:
Minimizes chances for failures. Investment is in a good place in the case of cryptocurrencies as they do not go bankrupt or a single point of failure. Thus, the money invested in them lasts longer and delivers good results.
Very easy for transactions. Buying and selling these coins is very easy.No loss will occur throughout the transaction, therefore you need not be concerned. Being decentralized facilitates money flow in the desired direction for anyone who wishes to buy or sell these coins.
No need for a third party. Anyone can transfer the concerned transaction through the use of public and private keys between the two parties without worry. There is no requirement for a third party, such as a bank or credit card.
Provide good returns. These currencies have generated great profits in the past and are still growing for the future. This upgoing graph has been quite favorable for investment and returns. Investment means exponential growth to your original amount.
Remittances are easily organized. Remittances are an essential part of various economies. These need some smooth and organized system. Crypto coins provide this system. The amount concerned with remittances is used to buy these coins which are then changed into the desired currency.
Why should you not invest in them? Take a glimpse of these factors:
Transactions are often under the wrong names. Since these coins are not centralized no one or no organization can put certain restraints. This allows for mysterious entries and the absence of actual pieces of evidence about the ones who take part in its transactions. This makes the dealing doubtful and troublesome.
It can be used for criminal purposes. Since the identities are fairly unknown the purpose and uses of the investments are doubtful. It may be for some criminal activities. The profit from the investment can be used for wicked purposes. It is kind of similar to the poker tournament in Bond film: Casino Royale, but no one knows the identities of the criminals.
There is always a struggle for centralization. While the actual model of all the transactions is decentralized, the struggle to dominate is present all the time. Different individuals and organizations try to control the majority share to make the most for themselves. This dominance can badly affect the movement of the prices and market trends which is bad for the normal flow.
Very difficult to enter this market. At the start of the cryptocurrency trends, it was easy to enter the market and buy these coins. But the rates have gone too high and it has become very difficult for new investors to buy large numbers of coins.
Prices/rates are unstable. The whole market of cryptocurrencies is pushed and pulled by a number of factors. These intricate forces are also due to the struggle to dominate and decentralized currencies in the first place. All this makes the prices of crypto coins unstable and worrisome for investors.
These are a few of the most important benefits and drawbacks that everyone should be aware of before making an investment.
Cryptocurrencies are the order of the day. Different sorts of cryptocurrencies are operating in the world delivering the associated facilities. But before anyone invests in any of them, he or she needs to understand some important characteristics of its working, uses, and lastly its pros & cons.