Basics of Cryptocurrencies with Pros and Cons for Investment
What is Cryptocurrency?
Cryptocurrency is a virtual or digital currency that the government or any other authority can’t control. The majority of the cryptocurrencies are generated through decentralised networks (these networks are based on blockchain technology), which is what makes it hard for governments and authorities to track or reverse the transactions made. Cryptocurrency is considered to be extremely safe. Crypto is secured by cryptography, which is also one of the main reasons that governments and authorities can’t track it. We would discuss today Basics of Cryptocurrencies with Pros and Cons for Investment.
In today’s day and age, crypto has become an asset for its users more than daily use. It is assumed that Cryptocurrencies are the future of the existing currencies, and they might wipe out permanently, which means the existing cryptocurrencies will transfer to cryptocurrencies. All the other blockchain technologies also have the scope of spreading through the industries, which could trigger the cryptocurrencies being used to spread through the industries and the world.
Wei Dai was the first one to describe the concept of “cryptocurrency” in 1998, which wouldn’t be controlled by centralised authorities and would be considered to be very secure.
Different Types of Cryptocurrency
Just like normal currencies, there are plenty of different cryptocurrencies. Each of them portrays itself to have different objectives and features.
The most popular and the best cryptocurrency is Bitcoin. As if today it is trading at 18,473 USD per 1 Bitcoin [Checkout Current Bitcoin Rate]. Bitcoin was launched by an anonymous group called Satoshi Nakamoto in 2009. Bitcoin inspired thousands if not millions to start their own crypto currency journeys as well. As if today, there are thousands of crypto currencies in the market. Hence, it’s known as the best cryptocurrency as well.
The value of any Cryptocurrency depends on multiple factors. But the most important one would be its recognisability. If a crypto coin can’t be recognized by people, it will automatically be less valuable. Because none would want to invest in it. So, it is quite predictable that the crypto currencies would fluctuate depending upon the decision of businesses and organisations to use the crypto currency or not. Hence, people consider it a digital asset rather than a daily shopping use.
Crypto Mining
Ever wondered, if there is no third-party involvement in cryptocurrencies? How are they being verified for transactions and How come there are new coins being added to the cryptocurrencies?
Normally, we have currencies that are traded with gold reserves. So, the value of the currencies is correlated with the gold reserves. Similarly, in the world of technology, we have crypto currencies that are not by any means correlated to gold reserves. But, cryptocurrency prices are related to complex mathematical problems. These complex mathematical problems come in blocks and they need to be solved in order to circulate cryptocurrencies in the system.
Crypto Mining is something that makes cryptocurrency unique when it comes to the advanced banking world. Crypto mining plays the role of third parties in the world of cryptocurrency. Primarily, Cryptocurrency mining is responsible for two very important jobs in cryptocurrency.
The first one would be to add digital coins to the crypto currency. Just like governments order and banks make money. Similarly, the new coin is added to the system. This is done by the use of blockchain technology, the cryptocurrency miners (people who do cryptocurrency mining) use the software and hardware that are powerful computers. They are responsible for solving these blocks of complex mathematical problems. The more powerful the computer is, the faster it solves these problems and is a middle party. They get a little commission fee that is their profit.
The second job that crypto mining is responsible for is the verification of the transactions. This is also done by figuring out the answers to complete mathematical problems that come in blocks and they are added to the distributed ledger in order to locate them.
While all of this is being done. There is no access of the cryptocurrency miners to the cryptocurrency in any way. They can’t even track anything. All they can do is purchase hardware and software for cryptocurrency mining.
Pros and Cons of Cryptocurrency
Whenever there is a new technology in the market. There are always some pros and cons. So, today we will discuss some of the pros and cons of cryptocurrency.
✅Pros…
– Faster Money Transfer
You might have experienced the problem of banks taking ages to confirm some of your big transactions abroad. It might be easy to send the money locally to banks. This process could be painful when it comes to sending money abroad to a different country.
The solution to that problem is cryptocurrency. Cryptocurrency allows you to transfer your coins within a few minutes. There are no hurdles such as banks asking you for a bunch of evidence to verify your transaction or governments not allowing it for some reasons.
Your transaction will be transferred in a few minutes, which makes the cryptocurrency unique in a way and gives a competitive advantage over banking transactions that can take ages.
– Lucrative Investment
We all have experienced inflation in our countries whether it is 2% or 10%. At the end of the day, it is taking our money away. So, what can be done to protect yourself from it?
You can invest your money in shares etc. However, the majority of the people tend to keep it in savings, which means it’s going to be their own local currency such as the Dollar or Sterling Pound. But what happens is the currency goes down. According to WorldData, an item costing 100 Dollars in 1960 would cost you 929.57 Dollars today in 2022.
So, what could be the solution to that?
The solution to that is cryptocurrency. Cryptocurrency has the ability to effectively deal with the problem of inflation and give you high returns. For instance, one of the top cryptocurrency called “Bitcoin”. 1 Bitcoin had a value of 327 Dollars in 2015. Meanwhile, 1 Bitcoin has been sold for as high as 64,400 Dollars in 2021. However, the prices have gone down since then due to the recession in some parts of the world. Despite that, the bitcoin value is still at 19,306 Dollars. Cryptocurrency prices do fluctuate. Ultimately, it has always proven to be very lucrative.
The moral of the story is that it is extremely lucrative for investment. Cryptocurrencies are considered to be one of the best investments. So far the best cryptocurrency to invest in is “Bitcoin”.
– No Third-Party Involvement
Time and time again various pieces of evidence have come out of the banks and big mafias or even the governments violating the local citizen’s rights to privacy. Governments and intelligence agencies have been accused of violating their privacy in various countries. Sometimes it is to benefit the dictators or to benefit the local party that is in power.
So what would be the solution to that?
Cryptocurrency does provide a solution. The fact that the cryptocurrency can’t be accessed by third parties. It makes it unique and very secure. As stated earlier, cryptocurrencies are secured by cryptographic. This means that governments or big mafias can’t access or track any of the transactions made by the local citizens.
– Accessibility
We have many countries in the world. The majority of them have their own local currencies. These currencies are not traded in other countries. For instance, if you have Dollar currencies. You can not go to the UK and spend Dollars, they have Pounds. Therefore, you would have to exchange your money and it makes the currency less accessible. Every time you would like to use your dollar, you would have to go to get an exchange. This is something that doesn’t exist in cryptocurrencies.
Meanwhile, when it comes to cryptocurrencies. You would simply need an account with the cryptocurrency wallets, you can buy and sell cryptocurrencies from anywhere in the world. If there is a store in the USA that takes a particular cryptocurrency. You can use that cryptocurrency in USA regardless of which country you have purchased it from.
❌Cons…
– No Third-Party Involvement
You might be surprised that no involvement of a third party was an advantage to be availed by the local citizens. Yes, it was an advantage. It can also be classified as a disadvantage. Let’s talk about it how?
Governments and intelligence organisations have been in the news for their inappropriate behaviour or privacy violation. At the same time, these organisations have taken care of local citizens and have tried their best to protect their local citizens from criminals. However, with no involvement from third parties, it has become easier for a criminal to transfer their money to any part of the world. It has already started happening. There has been plenty of evidence where big mafias and political party leaders have been found to be using cryptocurrencies to move their finances. Finance plays an important role in any kind of crime around the world.
-Not Exactly Centralised
Majority of the cryptocurrencies are decentralised. However, it is artificially centralised. According to the National Bureau of Economic Research, 11,000 investors are holding 45% of Bitcoin. Even though it is a decentralised currency. Technically, it has been centralised around these 11,000 people. It also opens up various possibilities for the governments and mafias to control it.
For instance, the governments and mafias could invest a huge amount to form a monopoly for any particular cryptocurrency. They can artificially fluctuate the cryptocurrency rates. E.g. withdrawing a huge amount of money would cause a fall in the prices of any particular cryptocurrency.
– Very Hard to become Crypto Miner
Crypto Mining might not be as simple as it sounds. It can be really difficult to mine. Small miners might not be able to make their living from crypto mining. According to the National Bureau of Economic Research, 10% of the crypto miners have 90% mining capacity. The rest of the 90% have very little left on the table for them.
– Currently can’t be used for Daily Life Use
Cryptocurrency is a true revolution when it comes to the technology world. However, it is still very unpredictable and isn’t considered to be safe for daily use. Top cryptocurrency like Bitcoin also fluctuates on a regular basis and it is only considered a lucrative investment for the long run.
Hence, there is still a need for the advancement and development of cryptocurrency that can be used as a daily use currency.
How to buy & sell Cryptocurrency?
Buying and selling cryptocurrency is very easy. You do not have to go to any shop or bank. You would have to go to the Cryptocurrency wallets. There are plenty of cryptocurrency wallets that are being used today. But, I’m going to recommend to you the top 3 ones:
Wrap up…
Cryptocurrency certainly has a bright future ahead. However, there is room for improvement in order to make it daily to use the currency. Whether you are a fan of it or not, you need to understand it. Because it will be very popular in the future.