risks and benefits of investing in cryptocurrency?
Before you embark on the cryptocurrency prices adventure, it is necessary to be informed on the subject, to know the benefits and especially the risks of this new digital currency.
Introduction to cryptocurrency
Virtual currency, better known as cryptocurrency prices, is a new 100% digital currency. It operates in a decentralized way, as it does not depend on financial institutions. Its creation is based on blockchain technology. A computer system for creating money, composed of a chain of blocks and managed by a peer-to-peer network. Each block corresponds to a transaction, and in order for it to be validated, the members of the blockchain network, called “miners”, must solve a cryptographic algorithm, using computer hardware with high computing power. The result obtained is called the “proof of work”, the fastest miner to solve this problem gets a monetary reward in the form of cryptocurrency tokens.
There are a large number of exchange platforms (Etoro, Kraken, Binance…), which allow you to buy or sell virtual currencies. These platforms act as brokers, offering technical analysis of market prices in real-time. The goal of each user is to speculate on the future of the invested currencies in order to generate capital gains. Cryptocurrency holders can hold their currency in a secure online wallet, exchange it for physical currency, or use it as a direct payment method to access goods and services.
All platforms have their own specificities. For example, an investor who chooses a long-term strategy will not use the same platform as an investor who wants to trade daily. It is important to find out which platform is best suited to your needs.
The benefits of investing in crypto-currency?
The performance
The main motivation for investing in cryptocurrency prices is the impressive rise of some crypto-currencies, sometimes up to a 10,000% increase. However, it is important to remember that these figures are particularly volatile and can just as easily fall overnight. The best way to ensure some security is to invest in different cryptocurrencies, in order to protect yourself and limit losses.
A new asset class
The second advantage lies in the notion of diversification. Indeed, cryptocurrencies are a new asset class, independent of central bank control, unlike traditional asset classes, such as real estate investment for example. Considered as international currencies, crypto-currencies do not need to be converted and can be used worldwide. These unique features of crypto-currencies are appealing to an ever-growing population.
The currency of the future
This new asset class, unknown until a few years ago, is gaining notoriety and is emerging as the future of the global economy. Today, we are only at the beginning of a monetary revolution. Indeed, we have seen impressive growth in the number of crypto-currencies and the number of users for several years. Today there are more than 3,000 virtual currencies, of which Bitcoin (BTC) is the best known and the most valuable. Ether (ETH) is also a very promising currency in terms of market capitalization.
The risks of investing in crypto-currency?
Volatility
The main risk of investing in cryptocurrency prices is its high volatility. This digital currency is insensitive to inflation but highly fluctuates according to supply and demand. Indeed, the value of this currency can soar or fall dramatically in a matter of days or even hours. A cryptocurrency investor will therefore need to be cool to the fluctuations of his cash. There is no point in panicking, a crypto-currency may very well fall by 9% and then increase by 12% the next day, and vice versa. It is therefore important not to overreact and to maintain a well-thought-out and fixed strategy.
Scams
It is essential to be careful and not to put your money on just any trading platform. There are many scams and dishonest sites in this business. There are a lot of bogus platforms out there that promise you huge profits but are only interested in taking advantage of your money. It is important to be cautious, to be informed, and not to trust just anyone. It is therefore advisable to do thorough research before starting to trade in the digital marketplace.
Hacking
Related to the scam issue mentioned above, hacking is also a very present risk in the crypto-currency environment. This is why it is important to choose a platform that can protect and secure your digital assets. This disadvantage is the paradox of this currency, its independence and decentralization allow instantaneous and fluid transactions, but this financial system is devoid of security and supervision by the state. Thus, it will be very difficult or almost impossible to recover your money in case of piracy.
Cryptocurrency is based on an extremely innovative monetary system, with a strong potential for development.
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