What is Cryptocurrency and How to Start Investing in Cryptocurrency?

What is Cryptocurrency?

According to Investopedia's definition; "A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation."

Advantages of Cryptocurrency

Although the advantages of cryptocurrencies are quite diverse, we have listed 5 main advantages for you.‍

High Risk and High Reward Potential

There are more than 10,000 different cryptocurrencies in today's market. Although they are very different from each other, all cryptocurrencies also have a few things in common. For example, sudden increases and decreases in values can be seen as a common point. Prices are driven primarily by miners' supply of coins and buyers' demand for them. These supply-demand dynamics can result in high returns. For example, it is possible to see that a cryptocurrency has doubled in a very short time. Lucky investors can use it wisely.

Trust That Comes with Blockchain Technology

One of the main benefits of cryptocurrencies is the blockchain structure that supports them. Blockchain is the decentralized data storage ledger that tracks every transaction. Once you log into the blockchain, this transaction can never be deleted. And thanks to the blockchain, which is stored decently on multiple computers, no hacker can access the entire chain at once. Any information stored in the blockchain is secure forever.

A Fairer, More Transparent Financial System

Our financial systems generally revolve around third-party intermediaries that process transactions. This means that if you make a transaction, you trust these brokers. Blockchain and cryptocurrencies offer an alternative to traditional banking. It can be viewed by anyone, anywhere, so you can take part in the financial markets and trade without intermediaries.

Crypto Trading Regardless of Time and Location

Another advantage of cryptocurrencies over traditional banks is that crypto markets are always open. You don't have to wait for exchanges to start trading during the day if you want to buy, sell or trade crypto. This has had such an impact on traditional banks that regular exchanges are looking for ways to trade stocks outside of working hours. Therefore, cryptocurrencies may be the best way to earn returns outside of normal working hours.

Cryptocurrencies Can Help You Beat Inflation

Cryptocurrencies are not tied to a single currency or economy. Therefore, their prices reflect global demand rather than national inflation. But what about the inflation of cryptocurrencies? The number of coins is capped, so the amount available cannot get out of control, hence no inflation. Some coins, such as Bitcoin, have a general limit, while others have an annual limit. But in both cases, this approach keeps inflation far away.

Disadvantages of Cryptocurrency

The disadvantages of cryptocurrencies are usually to think of them as traditional currencies. Here, we have listed 5 main disadvantages that may be a risk for you.

Cryptocurrencies are Extremely Volatile

While the price of a cryptocurrency can be quite high, it can also drop quickly. So, if you want stable returns, this may not be the best way. The cryptocurrency market is more vulnerable to price fluctuations. This can hurt the value of coins, which is one of the biggest disadvantages of cryptocurrencies.

Cryptocurrencies Are Still Very Young for Long-Term Investment

Cryptocurrencies have become quite known and are still gaining popularity. But they've only been around for over a decade. The concept came into our life with the publication of a white paper on Bitcoin in 2008. In contrast, stock markets can provide information back centuries. For example, gold has been a proven protector of value for thousands of years. What will happen to cryptocurrencies in the future is unknown and you need to be brave to invest in them.

You May Have Difficulty Understanding Cryptocurrencies

Cryptocurrencies can take some time to understand. If you're not too adapted to the digital environment, the concept of cryptocurrency may seem difficult and unfamiliar to you. Trying to invest in something you don't understand is a risk in itself. There are many online resources to help you out, but you still need to take some time to really understand the pros and cons of investing in cryptocurrency.

You May Have Serious Scalability Issues with Cryptocurrencies

Remember that digital currencies work at lightning speed. Considering this, some problems can be ignored. Cryptocurrency providers admit that this is a problem, saying that the blockchain has reached “certain capacity limitations” that slow down the rate at which transactions are processed. This can be a frustrating experience, and it is impossible to say anything about the possible financial losses it may cause.

Newbies in Crypto Exchanges are Vulnerable to Security Risks

Cryptocurrencies may not have the risks traditionally associated with using centralized intermediaries. However, this does not mean that there are no security problems. As a crypto owner, you can lose the private key that gives you access to your coins and all your assets. And then you can be exposed to hacking, phishing, and all other scams. This is something experienced traders watch out for, but newer traders can be vulnerable to such traps.

TLDR; if you want to keep up with the new generation of stockbroking and take advantage of the returns of the cryptocurrency market, you should start by getting to know cryptocurrencies well. Then you have to manage your money in sensible amounts.

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We have prepared a Cryptocurrency Database for you to get to know cryptocurrencies closely and guide your research. With the help of this database, you can make deeper research and comparisons about the cryptocurrencies you want to invest in.

Of course, this is not investment advice 😊

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