Invest or Not? – Exploring the Pros and Cons of Cryptocurrency

So, you are interested in cryptocurrency and not sure how it works? This is probably because you are not aware of the technology it works with. In this case, it is important to learn the basics of the crypto world and the various pros and cons of cryptocurrency.  

In this article, you will learn about the major pros and cons of cryptocurrency. However, before that, the article discusses the basics of crypto and blockchain and how they work. Moreover, you will also learn why people invest in cryptocurrency and whether you must consider investing or not. 

Hence, to learn more about crypto, read on to the end of the article. 

Understanding the Basics of Cryptocurrency 

A cryptocurrency is a form of currency that is protected by cryptography. Hence, it is next to impossible to counterfeit the currency. Basically, cryptocurrencies run on a network of computer systems (nodes) called blockchain.  

Mostly, blockchains are decentralized – that is, there is no one authority or a group of authorities verifying transactions. Here, the transaction is shared to a distributed digital ledger that is connected to a network of computer systems.  

Since cryptocurrencies operate on such decentralized networks, there is no government interference. Hence, many users and financial analysts consider cryptocurrencies as alternative payment methods. Moreover, some of them even think that blockchain and similar technologies will cause disruption in many industries. 

In fact, with the help of cryptocurrencies, you can buy products and services or trade currencies for profit. For example, some of the most popular cryptocurrencies are Bitcoin (BTC) and Ethereum (ETH). 

How Does Cryptocurrency Work? 

A cryptocurrency is a digital or virtual currency. In a blockchain platform, the developers secure those cryptocurrencies with their cryptographic systems. As a result, it is possible for you to pay someone without any third party present. 

The developers secure the cryptocurrencies through different encryption algorithms and cryptographic techniques. Some techniques include elliptical curve encryption, hashing function, public-private key pairs, etc. 

As you already know, cryptocurrencies run on the blockchain. It is the most important aspect that helps cryptocurrencies to function. As the name suggests, a blockchain is a group of blocks. These blocks contain information included in a digital ledger. Here, each ledger contains transaction information. 

When it comes to transactions, they need verifications from the blockchain network. Only then is it approved. Each validator in the network independently verifies transactions through the network.  

On the other hand, people on the blockchain verifies a block before its formation. Hence, it becomes impossible to build transaction histories. Basically, the network of individual node (computer) owners must all agree to the contents of the online ledger. 

To understand the basics of cryptocurrency, its workings, as well as prices and the latest updates, visit sources like Coinfomania

Why Do People Invest in Cryptocurrency? 

Cryptocurrency is a form of investment for many people. When people invest in a particular crypto, they believe its value will rise. Hence, they can profit from it with the passage of time. 

For instance, consider Bitcoin. If its demand grows, then the combination of supply and demand will lead to an increase in the value of each Bitcoin. Also, if people start using Bitcoin to make big payments, its demand will eventually go up. As a result, its price will increase in dollars. 

Hence, if you had purchased a Bitcoin before its increase in demand, you could sell that Bitcoin for more USD afterward. As of now (at the time of writing), the price of one Bitcoin is USD 99,195.03. (Just think about those investors who bought 100 Bitcoins for 1 USD each back in 2011.

Major Pros and Cons of Cryptocurrency 

Here are the major pros and cons of cryptocurrency as an investment: 

Pros 

Here are the major pros of cryptocurrency that you will benefit from: 

1. Removes Single Point of Failure 

A single point of failure is a large financial institution’s failure leading to a financial crisis. Generally, cryptocurrencies run through decentralized blockchain platforms. Hence, there are no centralized intermediaries that facilitate transactions. Hence, there is no chance for a single point of failure.  

2. It is Easy to Transfer Funds 

Since there is no third party like a bank or any financial institution, the transfer of funds is easy and fast. Moreover, these transactions have the security of public and private keys. Also, it works through various blockchain consensus systems. 

3. No Third-Party Intervention 

As already discussed, since there is no third-party intervention, cryptocurrency transfers are faster than conventional transactions. For example, an example of such a crypto transfer is flash loans. Basically, these loans do not require collateral, and the lender can execute within seconds. 

4. Streamlining of Remittances 

One of the major use cases of cryptocurrencies is remittance streamlining. For instance, Bitcoin is a popular intermediate currency that helps in cross-border money transfers. Here, the sender converts a fiat currency into Bitcoin and transfers it to the destination. Then, the receiver converts it into destination fiat currency. 

Cons 

Here are the general cons of crypto that you need to be aware of: 

1. Pseudonymous Transactions and Security Issues 

Although crypto transactions are pseudonymous, the FBI can still follow those transactions. Hence, it is possible for governments and authorities to track transactions. Moreover, criminals all over the world use cryptocurrencies for various nefarious activities. Also, hackers love cryptocurrencies to create ransomware. 

2. Tendency to Get Centralized 

With time, cryptocurrency ownership is becoming concentrated. Hence, decentralization becomes questionable. For example, many companies and investors are purchasing Bitcoin and holding them as funds. 

3. Expensive to Participate 

Anyone can mine cryptocurrencies with the help of a computer and an internet connection. However, for my popular cryptocurrencies, you need a lot of energy. Hence, due to the high expense of energy and mining unpredictability, crypto mining is getting concentrated. 

4. Price Fluctuations 

When cryptocurrencies come to public markets, they are subjected to high price volatility. Hence, to invest, you need to accurately monitor their prices. 

Final Thoughts 

Cryptocurrencies came in to revolutionize the finance world. However, just like every revolution that happened before, there are certain tradeoffs. For instance, there is always a theory of an ideal decentralized system and what it is currently in practice. Moreover, price fluctuations and security issues are still a big problem. 

Do you have more information to offer regarding cryptocurrencies? Please share them in the comments section below. 

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