Cryptocurrencies are digital money that are generated by a network of computers through solving math problems. They are not monitored by any single government body or a centralized bank of any sort. They rely know the public domain and cryptographic methods to keep records of creation and trade. These coins can either be obtained by mining or by exchange (similar to forex). There are more than 8,900 cryptocoins that are currently active. The exchange of crypto coins on the market is called crypto exchange and there are 217 of them. The most popular among them (by volume) remain Binance, Kraken, OKX, Coinbase and, Bybit.
When people save money, it is advisable to invest the saved money so that it can multiply instead of it just gaining the bare minimum of an interest. As the investors and asset managers say – let the money do the work for you. There are several investment options including but not limited to real estate, sovereign gold bonds, stocks of companies, pension funds, etc. The recent option to be added to this list is cryptocurrencies.
Like most investment options, there is fluctuations in the value of crypto coins as well and this is how the investors make money in this market option. And like everything under the sun, these also come with their own set of pros and cons. Let us discuss them in detail.
Pros of investing in cryptocurrencies
- Simple and easy transaction
The transactions can be made through wallets in the web or mobile apps of the crypto exchanges or hardware wallets and hence become very easy to perform.
- Security and Privacy
Since all the transactions are performed by computers, the data stored in the blockchains are mostly about the transaction, wallet information, timestamp, contract, etc. Thus the actual name of the people involved in the transaction is not revealed in the public ledger. These transactions use cryptography and block chain methods to store and verify the data related to transaction and are thus very secure in nature.
- Minimal transaction time and fee
The transactional speed is high (few minutes) which is very high compared to other transactions or wire transfers that sometimes takes days to reflect. In crypto exchange, all it takes is the time needed for the network to record and approve the blockchain of transaction. The transactional fee collected is also minimal compared to the fee collected in exchanges of fiat currencies (real world money like $ € etc)
- Inclusion due to decentralization
Since the coins are not governed by any nation, these transactions can transcend borders. As long as the seller and buyer have the required equipment, the transaction cam be done between any two parties immaterial of whether they have access to banks, government policies allowing transactions between them and provide other such transactional liberties.
- Scope for growth without inflation
So far, more than 20 million Bitcoin have been generated and since their demand is only increasing, it aids in the increase in the value of these coins as more are mined. This exempts them inflation factors and provide a steady growth in portfolio value.
- Uncorrelated asset
Unlike the fiat currencies that are fluctuated by market factors, the value of crypto coins do not fluctuate with the emotions of the market. Thus it makes for a sound option for diversification of assets
- Accessible at all times
Remains open for transaction 24×7. Internet access and a digital device is all that is required to make a transaction making it accessible to everyone at all times. It is also transparent in it’s nature since all the transactions are recorded in a public ledger. This allows any information related to the transaction available on the block chain.
Cons of investing in cryptocurrencies
- Volatile
Though the value of the coins do not vary with the market factors, the direction of their change may remain uncorrelated but it is not chartered either. There is no saying when and by how much their values may rise or fall at any given point of time and hence remain unpredictable. This affects the surety of returns to the investor.
- Illegal transactions
The security and privacy provided by the block chain algorithm and cryptography also aid criminals in using cryptocoins for activities like money laundering or for transactions in the dark web. This helps them avoid being monitored by law enforcement agencies.
- Controlled by few
The coins are decentralized from banks and most governments, but some governments have regulations in place for crypto exchanges to be considered legal and the creators also have a sway in determining the value of these coins. This leaves a very few people to control and sway the value of the coins in the crypto market.
- Permanence of transaction
Unlike bank transactions, these transactions are irreversible and do not tolerate careless transactions made to the wrong party. Once the transaction is performed, it is permanent and cannot be undone by anyone.
- Energy consumption
Mining of coins involves a significant amount of energy to be spent by high end computers to solve the math puzzles. These computers are often required to be the best ones available and the usual computers often do not have the computational power to make through to crack the complexity of these puzzles. This leaves a large amount of power to be consumed by the network of computers put ot work to mine these coins.
- Only few coins are available in fiat currencies
Only a few popular coins can be bought with fiat currencies. And so, those interested in transacting the unpopular ones have to get the coin available for purchase with fiat currency and then use those coins to get the unpopular coin they actually wanted to transact in. This also repeats while converting the unpopular coin into fiat currency. All of these would eventually increase the amount of transactional fee at each level of exchange.
- Fraud and Scam
Although, the cryptography and block chain algorithms do not leave a lot of space for hacking, it is still a possibility. There also a possibility of double transaction where the seller sells the same coin twice without the system recording the first sale. There are also a lot I
of scams riddled in the crypto market and one needs to careful of the agency through which the transaction is being made on your behalf. The user is also required to keep the bought coins safe by preserving the key to their hardware or online wallets as leaked information about the key can result in the loss of the purchased coins.
Conclusion
Like all investment methods, crypto coins also comes with it’s fair share of ups and downs. The investors are asked to educate themselves about the interested market, do their due diligence, weigh the pros and cons and then make an educated move in these exchanges. Happy trading!
