As cryptocurrencies continue to grow in the public eye, more investors than ever are turning to the space as a viable investment method. Where there is certainly potential for gains, digital currencies are just as likely to rampage your finances.
What is Cryptocurrency?
Cryptocurrency is a digital currency utilizing a secure ledger called the blockchain and cryptography to allow transactions to take place without having to rely on a central authority.
The concept of cryptocurrency first appeared in a 2008 article from an unknown individual or individuals with the pseudonym Satoshi Nakamoto. Bitcoin, the first cryptocurrency, appeared the following year.
Coins require the “mining” of digital data to initially obtain, a process that only gets more convoluted with each new attempt. Values attributed to each crypto come from its users and overall supply and demand.
How Many Coins Are There?
Many developers and companies have tried to follow in Bitcoin’s footsteps, but no one has succeeded as of yet. A handful of coins have reached impressive valuations, but none come close to what Bitcoin has been able to do.
At last count, there are well over 10,000 coins to choose from. Many serve a unique purpose on the blockchain, but the best crypto right now can also be a significant boon to your portfolio.
Before doing so, it’s imperative to understand the benefits and dangers of investing in crypto.
Benefits of Investing in Crypto
Here are some of the top reasons to consider adding crypto to your portfolio:
High Return Potential
The cryptocurrency world is ripe with money-making potential. It’s estimated that over 170,000 individuals have earned over $1 million from crypto investing, and that number is growing with each passing year.
While much of that success comes from Bitcoin, other digital currencies like Ethereum have minted millionaires as well. As new coins enter the market, they each bring with them an opportunity for wild, fast gains that you rarely see in any other sector.
Low Fees and Fast Transaction Speeds
All crypto transactions happen on the blockchain, eliminating the need for a third-party financial institution such as a bank or credit card company to facilitate. Fees on crypto exchanges are typically quite low, allowing investors to perform actions without feeling the pinch every time money moves around.
Along those same lines, removing extra steps from the process enables crypto transactions to take place in record time. Although the number can vary slightly depending on the blockchain, some coins require mere minutes to transfer. Compare that to traditional banks that may need days for the same result.
Transparency
The entire blockchain rests in public space, meaning it’s not controlled by a centralized entity. There’s no government or fiat currency that can set a digital coin’s value or impact it in any way.
It also allows every purchase, sale, or trade to be seen or tracked in a standard ledger, completely visible to anyone. These transactions are immutable and unable to be changed, deleted, or otherwise manipulated in any way.
Accessibility
Unlike stock markets that have a set open and closing bell, you can invest in crypto at any time, day or night. You’re not confined to a particular trade window that may not fit with your schedule.
Getting started with crypto is also quite easy. There’s very little information you need to provide before opening a wallet that becomes your gateway to trade. No one will ask to verify your identity or check your credit history for potential red flags.
It’s also possible to access your wallet or exchange account with little more than a smartphone or computer and an internet connection.
Inflation Protection
The U.S. dollar and other fiat currencies have a history of losing value year over year. Because cryptocurrencies aren’t tied to any other form of money, they’re often exempt from the perils of inflation.
Bitcoin has a hard limit on the number of coins that can ever be minted, and the supply available for minting will eventually run out. As this happens, one can expect its value to rise as the overall supply will forever remain the same. Other coins may choose to follow the same strategy.
Crypto Dangers to Watch Out For
Keep these problem areas in mind when you go to make an investment:
Volatility
The price of all coins, including Bitcoin, has shown to be extremely volatile. They’ve historically moved through some massive highs and lows, contributing as much to profits as they have to losses. Several factors play into this cycle, but it’s still very difficult to predict.
No one knows for sure if this will lessen as the crypto scope widens with additional coins. It’s also clear that many altcoins with the best intentions never leave the ground, causing heartache to hopeful investors.
Regulatory Uncertainties
Because cryptocurrencies are fairly new, there’s still a lot of uncertainty surrounding government reach. New regulations can affect how you trade coins, perhaps limiting their effectiveness as an investment.
Laws and guidelines can extend to the purchase or sale of digital currency as well. Some regions and companies are beginning to allow certain cryptos for sure, but all of the above varies greatly from one area to the next. Be sure to check all regulations in your country before investing.
Lack of Knowledge
There are a lot of nuances from blockchain to crypto wallets surrounding the crypto world that require time and energy to understand. Without this knowledge, investing in crypto can be both frustrating and overwhelming.
New altcoins and ways to invest, such as non-fungible tokens (NFTs), often just add to the confusion. Anyone willing to use cryptocurrencies as an investment vehicle needs to have a grasp on at least some of these concepts to be effective.
Theft and Scams
As an entirely digital space, crypto trading is ripe for thieves and scammers out to make money in unscrupulous ways. These individuals can create platforms that mimic legitimate exchanges but ultimately steal what’s yours. Hackers may similarly attempt to force their way into your crypto wallet and clean out all your hard-earned coins.
There are no inherent protections in place either, so if someone gains access to your crypto wallet, there’s very little you can do. It’s essential to have your own checks and safeguards in place while keeping your wallet keys in a secure location.
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