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Are Cryptocurrencies Worth the Risk? An Objective Analysis

Post by Paul Boyce Posted in Finance
Last Updated October 28, 2022

What is Cryptocurrency?

Cryptocurrencies are described as the future of money. While for some, it has unlimited potential and uses, others aren’t entirely convinced. Cryptos still hasn’t made its mark, but with the rise in the number of financial companies, it will surely reach its height in no time. Let’s help you know what cryptocurrencies are and why they are a thing of the nearer future!

Cryptocurrencies are virtual money safeguarded by cryptography, making it hard to sham or spend more. They are decentralized networks functioning on blockchain technique – a scattered ledger imposed by many computer networks. What makes cryptocurrency different from any national currency is that it is not issued or regulated by any governmental authority.

Key Points

A cryptocurrency is a virtual currency based on a network distributed across a heavy number of computers. It is a decentralized structure that works outside the governmental and central authorities.
Blockchain ensures the reliability of transactional data.
Cryptocurrency faces condemnation because of its usage in illegal activities, high volatility rate, and frame vulnerability. However, it has gained fame because of its transparency, transferability, and inflation struggle.

What is Cryptocurrency Mining?

Cryptocurrency mining is the procedure by which new crypto coins enter into circulation. It is performed using advanced and sophisticated computers which solve computational math sums. Once solved, cryptocurrency is then created.

Cryptocurrency mining is costly, painful, but extremely rewarding. Previously mining garnered a lot of interest from the investors who wanted to be rewarded for their job with digital tokens. However, before you invest your time, money, and equipment, make sure you know whether mining is meant for you or not.

Major Takeaways

You can earn crypto coins without buying them with mining.
Bitcoin miners get Bitcoin as a reward for completing verified transaction blocks.
The reward is paid to the miner who finds a solution to a complicated hashing puzzle.
You need an ASIC (Application-specific Integrated Circuit) or a GPU (Graphics Processing Unit) to establish a mining rig.

Types of Cryptocurrencies

Over 10,000 variations of cryptocurrencies are being traded globally as per CoinMarketCap.com. And, the cryptocurrency market continues to flourish, raising money via their ICOs. Various kinds of cryptocurrencies are accessible online today such as:

Bitcoin

Bitcoin is the most popular cryptocurrency out there. It is always trending in the market space because of the blockchain technology that it offers. In the year 2020, Bitcoin traded at $23,000 only in December 2020.

Ethereum

Ethereum is the biggest competitor of Bitcoin. Yes, The King of DeFi, Ethereum has a market capitalization of $68,127billion. With the upcoming technological revolutions, DeFi (Ethereum is based on DeFi technology) will surely make it place on the top.

Litecoin

Litecoin is a well-established name in the crypto space. It has reached 4th place on the list of largest coins by market cap. It is one of the top performing coins right now as its value has doubled over a span of a month.

Ripple (XRP)

If you want full benefits like low exchange rates and instant confirmation of transactions and cannot compromise on the reliability, then this coin is for you. Ripple has its own currency XRP, its price is quite affordable. You can obtain maximum benefits using the buy at bottom and sell at the top rule.

How to Buy Cryptocurrency?

To buy bitcoin, you require a crypto wallet. You will also need a crypto exchange that lets you contact buyers and sellers to trade cryptocurrency. Most exchanges serve in multiple digital currencies such as Doge, Ripple, Cardano, Litecoin, Tether, and more.

Make an account on an exchange and deposit money to purchase cryptocurrencies such as Bitcoin, Ripple, or Doge.

You can check out cryptocurrency prices and then enjoy secure and reliable trading.

Advantages and Disadvantages of Cryptocurrency

Benefits of cryptocurrencies

Just like gold, cryptocurrencies are a tradable commodity. A lot of people prefer crypto transactions because the government does not regulate them.
One major benefit that cryptocurrency provides is that there is no annoyance of middlemen. It provides easy and secure, rapid, and less troubling transactions. Also, it does not even involve any additional transaction fee.
Cryptocurrency transactions are fully secure and confidential which defends its users from privacy issues, identity frauds, and threats.
The majority of people around the world have access to the internet rather than banks and other currency exchanges. Therefore, transferring funds and services on the internet through cryptocurrency without the banking system is easy, even for the deprived and needy people.
It is an excellent opportunity for people from international businesses and services to make transactions without any complication. It helps users to make a one-on-one exchange online without the issues of privacy and security.

Disadvantages of cryptocurrencies

Cryptocurrency is a volatile market; hence, you always have to take risks. There are no guarantees of profit.
It is not regulated which means unless the government regulates it there will be risks and loss connected to the investment in cryptocurrencies.
Price volatility is another major drawback of using cryptocurrencies. There is no guarantee that the price will rise or drop. Hence it has a lack of inherent value.
Blockchain is a safe and secure method of payment, yet there are many risks connected with cybersecurity. Hackers are always ready to attack cryptocurrencies owned by people without adopting adequate safety measures.

Is Crypto Secure?

Blockchain technology is decentralized and is based on distributed ledger technique and the encryption procedure endured by every transaction.

As it is not backed by any governmental authority, it doesn’t have the protections enjoyed by standard currencies worldwide.

However, keeping this factor aside, digital coins like Bitcoin and Ethereum come with high goals which can be accomplished in the long run. While the success of cryptocurrency projects is under no guarantee, if they achieve their goals, early investors will be heavily rewarded.

For any crypto project to be successful, widespread adoption is needed. Having said that, some cryptocurrencies can diversify your portfolio because crypto coins such as Bitcoin have historically shown no price correlation with the US stock exchange.

So, if you think that the use of Bitcoin cryptocurrency will phenomenally increase over time, you should possibly buy some cryptocoins to diversify your portfolio.

It is up to you to decide whether you want to trade in the cryptocurrencies or store Bitcoin in a Bitcoin wallet. You need to do some technical analysis and check the Bitcoin price.

Choose a reliable exchange, do proper analysis and then buy Bitcoin for best results.