Cryptocurrency Basics: Uncover the Hidden Pros and Cons That Could Make You a Fortune or Leave You Broke!
So, what’s this cryptocurrency craze all about? If you’re asking that question, don’t worry, you’re not alone.
The world of cryptocurrency is a mystery to many people and unless you’ve been following it for a while, the lingo, the process of buying, and the different types of cryptocurrency that exist can be very confusing.
In this guide, we’ll cover all of the basics that you need to know to get started with cryptocurrency.
The pros and cons of cryptocurrency
• Low transaction fees: Traditional banks and payment processors can charge 2% to 4% in fees for processing a payment. That can really add up if you’re buying a home or car. Cryptocurrency transactions are typically much cheaper, especially for larger transactions.
• Privacy: Cryptocurrency transactions are not tied to your personal information the way credit card payments are. When you make a payment with a credit card, the merchant has to ask your bank to verify your personal information and make sure you have the money in your account. With a cryptocurrency transaction, the merchant receives an encryption that verifies the funds are available, but not your personal information.
• Accessibility: There are billions of people around the world who don’t have access to a bank account or credit card. However, many of these people do have access to a smartphone. That means they can access the global economy and make financial transactions using cryptocurrency.
• Inflation hedge: The supply of most cryptocurrencies is capped. For example, there will never be more than 21 million bitcoins in existence. This is in stark contrast to traditional currencies, where central banks can print an unlimited amount of money. This is a big reason why some investors view cryptocurrencies as a hedge against inflation.
Pros of Cryptocurrency
1. Cryptocurrency is decentralized. In a world where we’re constantly dealing with political and economic uncertainty, it’s nice to know that cryptocurrency is not tied to any one government or country.
2. It’s secure. When you make a transaction, your personal information is not stored. This protects you from identity theft. Plus, no one can alter a transaction after it’s been completed.
3. It’s private. While all transactions are stored publicly on the blockchain, the people involved in the transactions are not identified. So, you can remain relatively anonymous.
4. Cryptocurrency is accessible. You can access your cryptocurrency from anywhere in the world. All you need is an internet connection.
5. It’s fast and easy. You can send money anywhere in the world quickly and easily. That’s a huge benefit, especially for people who don’t have access to a bank.
1. Easy to access
The best part about investing in cryptocurrencies is that you don’t need to be a millionaire to do it. You can start investing with as little or as much money as you want. In fact, you can buy a fraction of a coin if you want. If you want to invest $100 and a coin costs $20, you can buy 5 coins. If you want to invest $100 and a coin costs $100, you can buy 1 coin. It’s that simple.
Also, you can buy cryptocurrency 24/7, 365 days a year. You don’t have to worry about the typical restrictions of traditional stock market hours. This is great for people who work during the day and can’t trade during the typical stock market hours.
2. Security
How secure are cryptocurrencies? The answer is, it depends on how you use them.
First, you need to understand the difference between hot and cold wallets.
Hot wallets are digital wallets that are connected to the internet. They’re great for making quick transactions, but they’re also more susceptible to hacking.
Cold wallets, on the other hand, are digital wallets that are not connected to the internet. This makes them more secure than hot wallets, but it also makes them less convenient for making transactions.
There are a number of different types of cold wallets, including paper wallets, hardware wallets and even physical coins.
The most secure way to store your cryptocurrency is to use a combination of hot and cold wallets. Keep a small amount of cryptocurrency in your hot wallet for making quick transactions, and then store the rest in a cold wallet.
You should also make sure that you use a strong password to protect your wallets, and that you enable two-factor authentication whenever possible.
Finally, you should be careful to only use reputable exchanges and wallets. There have been a number of high-profile hacks in the past, and you don’t want to become the next victim.
3. Faster, cheaper and easier international transactions
There are a lot of reasons why people are turning to cryptocurrency as a form of payment.
One of the main reasons is speed. When you use a credit card, the credit card company has to verify the transaction. This can take days, and in some cases, it can take up to a week.
With cryptocurrency, the transaction is verified almost instantly. This means that you can use cryptocurrency to make a payment and the person you are paying will receive the money in a matter of seconds. This is a huge advantage for people who need to send money quickly.
One of the most well-known benefits of using cryptocurrency is that it’s cheaper than traditional transactions. This is especially true when it comes to international transactions.
When you transfer money from one bank account to another, you typically have to pay fees. Not only do you have to pay fees to your bank, but the bank receiving the transfer will likely charge fees as well.
When you make a cryptocurrency transfer, you only have to pay what’s called a “miner’s fee.” This is a small fee that gets paid to the people who make sure the transaction is secure and is added to the blockchain.
In most cases, the miner’s fee is much cheaper than traditional fees. And, because the fee is paid to the same people no matter where the transaction is taking place, it doesn’t change based on where you are or where you’re sending money.
If you’ve ever traveled internationally, you know that currency exchange rates can be a real pain in the neck. If you’re not careful, you can easily lose 10% or more of your money just by exchanging it from your home currency to the local currency.
That’s where cryptocurrency can help. Because it’s a digital currency, it can be used to buy goods and services in any country without using an exchange rate. It’s also much cheaper and faster than using traditional banks for international money transfers.
While the technology is still being developed, the potential to revolutionize the way we think about money is enormous. And that’s one of the reasons why so many people are excited about investing in cryptocurrency.
4. No need for banks
Some people just don’t like banks. They don’t trust them, they don’t want to pay fees, they don’t want to share their financial information with them, and they don’t want to be told what they can and can’t do with their money.
If you’re one of those people, you’ll love this benefit of cryptocurrency. You don’t need a bank to use it.
In fact, you don’t even need a bank account to use cryptocurrency. All you need is a smartphone, tablet or computer to get started. This is a huge advantage for the 1.7 billion people around the world who don’t have access to a bank account.
And for the 2.2 billion people who do have a bank account, but don’t have access to modern financial services like loans, credit, and investment opportunities. Cryptocurrency opens up a whole new world of financial possibilities.
That’s because with cryptocurrency, you are your own bank. You don’t need anyone’s permission to send or receive money. You don’t need to share your personal information with anyone. And you don’t need to pay any fees.
5. Low fees
Last, but certainly not least, is the fact that fees are incredibly low in the world of cryptocurrency.
When you buy or sell stocks, you have to pay a fee to the broker. The fee is typically a small percentage of the total amount of the trade. However, with cryptocurrency, fees are typically much lower than what you would pay to a broker.
While it’s true that some fees are higher than others, you can always see how much you’re going to pay before you make the trade. This is why it’s important to shop around and find a platform with the lowest fees.
Cons of Cryptocurrency
Volatility
The most obvious downside to cryptocurrency is the same thing that makes it so appealing: it’s volatility. The price of a single Bitcoin can change by thousands of dollars in the span of just a few hours! This is great if the price is going up, but if you just bought in and it takes a nosedive you could be left with a lot less money than you started with.
Regulation
One of the big draws of cryptocurrency is that it isn’t regulated by any government. But that’s also one of the reasons it can be so risky. The government can’t protect you from getting scammed or losing your money. And if something goes wrong, you can’t call up a government agency to complain. You’re on your own.
Security
One of the big selling points of cryptocurrency is that it’s secure. But that’s not always the case. If you’re not careful, it’s possible for someone to steal your cryptocurrency. And once it’s gone, it’s gone. There’s no way to get it back.
Scams
Cryptocurrency is a hot market, and that attracts a lot of scammers. There are all kinds of scams out there, from fake ICOs to Ponzi schemes. If you’re not careful, you could lose a lot of money.
1. Lack of regulation
In the U.S., the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are the two main regulatory bodies that monitor the financial markets.
But there’s no one agency that oversees the cryptocurrency market. While the SEC and CFTC have both taken steps to regulate the market, the lack of a clear regulatory framework is a problem for investors.
For example, if you own stock in a company and the CEO is caught lying about the company’s finances, there are clear penalties for that. But in the crypto world, there’s no one to hold accountable if something goes wrong.
This lack of regulation is one of the main reasons why you should be very careful when investing in cryptocurrencies.
2. Not widely accepted
The majority of retailers don’t accept cryptocurrencies as a form of payment. Even though that number is growing, it’s still a small percentage. But there are a few workarounds if you want to spend your crypto.
You can use a service like BitPay to convert your cryptocurrency into dollars, which can then be used to complete the purchase. BitPay works with a variety of retailers, including Microsoft and AT&T.
Or you can use a credit card that rewards you in cryptocurrency. The BlockFi Bitcoin Rewards Credit Card is a great example. You earn 1.5% back on all purchases, and those rewards are paid in Bitcoin. It’s a great way to earn some free crypto while you shop!
As for the future of cryptocurrency and its acceptance, that’s anyone’s guess. But the more widely accepted it becomes, the more valuable it will be.
3. Price volatility
All investments have some level of risk, but there are different types of risk to consider. Stock market investors might be concerned with the risk of a company’s stock price going down. With cryptocurrency, the risk is more about the price volatility, or how much the price of a cryptocurrency can change in a short period of time.
As an example, the price of a single bitcoin has been as low as $0.30 and as high as $64,863.10 in its relatively short history. While the potential for big returns is certainly a good thing, it’s also important to understand that the potential for large losses is also a risk factor with cryptocurrency.
4. Risk of loss
Cryptocurrency is a relatively new and unregulated market. That means you may not be able to recover your losses if your account is hacked, if you lose your password, or if you fall victim to a scam.
In fact, you may not even know who to call if something goes wrong.
That’s not to say you should avoid cryptocurrency altogether. But you should be aware of the risks and take steps to protect yourself.
5. Potential for illegal activity
The fact that cryptocurrencies are decentralized and unregulated makes them a perfect tool for illegal activities like money laundering and tax evasion. After all, the government can’t track your transactions if they don’t know you made them.
And while the majority of cryptocurrency transactions are conducted legally, there are certainly those who use them for nefarious purposes. In fact, a recent study found that illegal activity accounted for about 1% of all Bitcoin transactions in 2020.
So why is this a concern? Well, for starters, the potential for illegal activity could lead to increased regulation of the cryptocurrency market. And as we’ll discuss in the next section, regulation is one of the biggest risks to the future of cryptocurrencies.
In addition, the fact that some people use cryptocurrencies for illegal activity could lead to a negative public perception of the market. After all, the general public may not be able to differentiate between a “good” use of cryptocurrency and a “bad” one.
How does cryptocurrency work?
Cryptocurrency is a digital or virtual currency that uses cryptography for security and is typically built on blockchain technology, a distributed ledger that records all transactions across a network of computers.
Bitcoin was the first cryptocurrency, created in 2009 by an unknown person or group of people using the name Satoshi Nakamoto. It’s also the most valuable and widely used cryptocurrency today.
Bitcoin and other cryptocurrencies are not issued by any government. They are decentralized, meaning no single organization, like a bank, controls the currency or the transactions.
Here’s an overview of how cryptocurrencies work:
1. Cryptocurrency transactions are verified and recorded on a blockchain, a digital public ledger.
2. New cryptocurrency coins are created through a process called mining, a process in which a computer solves a complex mathematical problem to add a new block to the blockchain.
3. Cryptocurrencies can also be bought and sold on exchanges, like the stock market.
4. Cryptocurrencies can be used to buy goods and services, though they are not accepted by all merchants and vendors.
5. Cryptocurrencies can also be traded on the foreign exchange (forex) market.
Conclusion
I hope that you have found this article to be helpful and informative. Remember, there are many ways to invest money. Don’t put all your eggs in one basket. If you are considering investing in cryptocurrency, make sure that you have done your research and understand the risks. If you are ready to get started, take it slow and start with a small amount of money.