Cryptocurrency has been around for some time now, silently toiling away and growing in the background. However, its popularity has been increasing steadily year on year and it is now coming to the forefront of the financial world. More and more people are investing and trading in cryptocurrency, retail outlets are accepting payment in cryptocurrency and even traditional banks are diversifying into cryptocurrency. You may recognise some of these crypto banks, Barclays, JP Morgan, and Goldman Sachs to name but a few.
Cryptocurrency can offer many new and exciting means to make money and diversify investment portfolios, but it is now without its pitfalls. To help you get to grips with cryptocurrency, here are some of the pros and cons of using it to make money.
It can be highly rewarding
Quite literally, the financial rewards of trading in crypto can be very high. Cryptocurrencies tend to experience rapid spikes in value and if you can cash out at the top of that spike you could be looking at a very healthy return. The prices are primarily driven by the supply of coins from the miners and the demand for those coins by purchases. As with any supply and demand metric, it can result in high rewards.
It can be high risk and very volatile
As with most high return investments, cryptocurrency is also a high-risk investment. Those almost unfathomably high spikes investors see in the value of crypto can be followed by devastating lows and crashes in value that can see your wealth deplete. Cryptocurrency has a reputation for being incredibly volatile and being particularly vulnerable to price fluctuations, so if you are not comfortable trading in a high risk environment it is not for you.
Cryptocurrency is commonly supported by sophisticated blockchain software. Blockchain is a decentralized data-storage system that can track every transaction undertaken. What is more, once that entry has been made into the blockchain it cannot be erased. There is a permanent record of every transaction that takes place on a blockchain supported crypto. Further, as the blockchain is stored decentrally across several computers it cannot all be hacked simultaneously. Essentially this means all of the information that is stored is safe, forever.
It is complicated
If you are new to cryptocurrency then it can send your head spinning. Especially when you consider there are over 10,000 different currencies. This is only then made worse when you throw in terminologies such as blockchain, miners and interest accounts. A lack of awareness can be particularly troublesome if you are looking to invest as you will be hesitant to put your money into something you do not fully understand. A lack of understanding is in itself a risk.
If you want to know more about cryptocurrency to invest then it is highly recommended that you spend time researching and truly understanding as much about the market and currency as possible.
All hours trading
Investors who trade on the stock market are tied to the hours dictated by the market and banks. Traders are up against the clock every day and have a set period in which to carry out their investments, which can create a high-pressure environment that results in poor investment choices. Cryptocurrency markets on the other hand are always open, and you can generate your returns any time of the day, any day of the week. Of course, this means that if you are not keeping up to speed with developments you could potentially miss out. So, whether you deem 24-hour trading to be a positive or negative attribute is a personal consideration.
The future remains uncertain
As touched upon previously, cryptocurrencies are still a relatively new venture, in the scheme of things. They have only been around for a decade and have not had to stand the test of time in the way other investments and trading platforms such as the stock market and commodities have. The reality is that no one can say with any certainty what the future of cryptocurrency is and whether it truly is a long term investment.
The way blockchain and cryptocurrencies work differ from the more traditional financial systems because they are much more transparent. Cryptocurrencies and blockchains can be viewed by anyone, at any time from anywhere. This also means that you can take part in the crypto market without having to go through an intermediary, which inevitably costs and adds an additional party to any transaction.