Cryptocurrency is the name of a digital currency. It can be used to purchase goods and services. This decentralised digital currency is made of Blockchain technology. The use of Blockchain technology and cryptography increases the security of cryptocurrency. It was impossible to believe even a decade ago that some of your investment portfolios will be in cryptocurrency. These days, you may seem to be behind on times if you do not invest in at least one type of digital currency, as there are more than 6700 cryptocurrencies these days that are actively traded.
The total value of all cryptocurrencies was more than $1.6 trillion in February 2021 and many businesses have their own digital currencies and use it as a means to launch various products. However, many people wonder about one thing – ‘is it safe to invest in cryptocurrency‘. After reading this article, it will be easier for you to decide whether or not to invest in digital currency.
What is Cryptocurrency?
In 2009, Satoshi Nakamoto invented the first digital currency; however, these currencies did not catch the limelight until recently. Cryptocurrency can be used for investment or purchasing various products via online transactions (if this option is available). You may exchange any real currency (dollars or euros) in order to buy the ‘tokens’ or ‘coins’ of a particular cryptocurrency.
There are different types of cryptocurrencies and Bitcoin is the most famous amongst all digital currencies. However, Ether, Litecoin, Cash, and Ripple are some of the popular digital currencies at present. Facebook has recently created a cryptocurrency that is known as Libra.
In cryptocurrency, each coin is made of a unique set of codes and these codes cannot be duplicated. Thus, cryptocurrencies are considered to be secure for investment. If you are worried about the loss of money due to loss of security, then you may rest assured that the cryptocurrency is worth it.
How does Cryptocurrency Work?
Cryptocurrencies are exchanged over the internet without requiring the supervision of a bank or government. Hence, all types of digital currency are decentralized currencies. For example,
You may have hired someone to walk your pet dogs when you are at work. In this scenario, you may decide to pay this person in cash, and you need not complete the transaction through a bank.
Similar to the aforementioned scenario, you need not go through a bank in order to exchange any cryptocurrency. The government also has no control over the exchange. However, the cryptocurrency’s worth is changeable due to this reason, as their worth is whatever people are willing to pay for them.
Cryptocurrencies are exchanged using Blockchain technology. This system is used to record data in a secure manner. It is difficult (or nearly impossible) to alter, cheat or hack this system. A Blockchain records the data of each transaction similar to a receipt and it keeps growing with each exchange.
- You may store the cryptocurrencies in a digital wallet either through a vendor wherefrom you have bought the coins or using an app.
- You will receive a private key after storing the coins.
- Each key is a unique digital code.
- You have to enter this code to digitally “sign off” on each purchase which legitimizes the exchange.
What can You Buy in Exchange for Cryptocurrency?
Currently, cryptocurrencies are mainly used for investments. However, some online retailers, such as overstock.com, accept cryptocurrencies to buy or sell products. You may even give or accept the cryptocurrency to or from someone who values the tokens in exchange for services or goods. A few of the major retailing businesses, such as Whole Foods and Nordstrom, are experimenting with using Bitcoin as a legitimate source of payment.
Should You Invest in Cryptocurrency?
Claire Lovell is the Associate Director of Product Management at Gemini (an investment platform for cryptocurrency). According to Ms. Lovell, the value of Bitcoin has reached an all-time high. On the other hand, major financial institutions have started to adopt digital currency. Thus, cryptocurrencies are becoming an important part of finance and FinTech and the importance of cryptocurrencies will continue to increase over the years.
When using cryptocurrency, consumers have more independence, greater options, and better opportunity in terms of investment. The decentralized nature of Cryptocurrency is another benefit of investing in digital currency, as it does not have the weak points of the modern banking system and the consumers have direct access. Therefore, it is easier to buy, sell, store, or trade digital currencies in comparison to traditional currencies.
According to Drew Hamilton (CEO of Rubix.io which is a cryptocurrency platform), digital currency is still in its infancy. The price of different digital currencies may seem steep at present. However, investing in digital currency at present is similar to getting on the ground floor.
- According to some experts, the worth of Bitcoin may reach $100,000 one day.
- One industry insider even believes that the value of digital currency may exceed $300,000 per coin by the end of 2021 according to a leaked report from Citibank.
According to Len Garza (esquire of Garza Business and Estate Law), it is riskier to invest in digital currency due to its volatile nature. Therefore, it may not be ideal for those who want to minimize the risks as much as possible when investing in the assets. For example,
One Litecoin was worth more than $300 ($306.87 on December 15, 2017) at the end of 2017. However, its value dropped to $30 by January of 2019 and rose to $140.96 in January 2021.
Bitcoin also experienced this volatility in value. Bitcoin’s value went below $4,000 per coin in January 2019; however, it rose to (an all-time high) $41,940 in January 2021.
Len Garza has warned the buyers or investors of cryptocurrency regarding the cybercrimes associated with the transactions or investments since there are no regulations to govern different markets of digital currency. You have to use online exchanges to trade cryptocurrencies via mobile apps or websites and this will expose you to cyber hacking.
Hence, there is a possibility that someone may get their hands on your digital currency. It is difficult to prevent such fraudulence.
So, What You Decided?
The value of all Cryptocurrencies frequently fluctuates and there are many unknown facts regarding digital currency, as it is still in its infancy. However, cryptocurrency has started to gain momentum and its importance is expected to grow in the future. Hence, it is worthwhile to invest in cryptocurrency if you want to take a little bit of risk associated with the investment.