Technology has changed the way people work, communicate, shop, and even pay for goods. Companies and consumers don’t always prefer cash anymore, and this behavior gives way to contactless payments like Apple Pay. With the quick wave of a smartphone, consumers can pay for items at digital registers. Now, a new payment system is emerging: cryptocurrency.
Research suggests most people have heard of cryptocurrency but don’t fully understand what it is. So is crypto investment safe? Why invest in cryptocurrency? GIG will answer in the following article.
How Secure Is Cryptocurrency?
Cryptocurrencies are usually built using blockchain technology. Blockchain describes the way transactions are recorded into “blocks” and time-stamped. It’s a reasonably complex, technical process, but the result is a digital ledger of cryptocurrency transactions that’s hard for hackers to tamper with.
In addition, transactions require a two-factor authentication process. For instance, you might be asked to enter a username and password to start a transaction. Then, you might have to enter an authentication code that’s sent via text to your cell phone.
While securities are in place, that doesn’t mean cryptocurrencies are unhackable. Several high-dollar hacks have cost cryptocurrency startups heavily. Hackers hit Coincheck to the tune of $534 million and BitGrail for $195 million in 2018. That made them two of the biggest cryptocurrency hacks of 2018, according to Investopedia.
Why Should Anyone Invest in Cryptocurrency?
Cryptocurrency built on blockchain technology
The blockchain technology underlying bitcoin and other cryptocurrencies have been hailed as a potential technology for many industries, from shipping and supply chains to banking and healthcare. By removing intermediaries and trusted actors from computer networks, distributed ledgers can facilitate new types of economic activity that were not possible before.
Blockchain’s potential makes for an attractive investment to people who believe in the future of digital currencies. For people who believe in that promise, investing in cryptocurrency represents a way to earn high returns while supporting the future of technology.
The total supply of cryptocurrencies is limited.
Another common reason to invest in cryptocurrency is The total supply of cryptocurrencies. Unlike fiat money, most cryptocurrencies have a limited total supply, capped by mathematical algorithms. This makes it impossible for any political body or government agency to dilute their value through inflation. Moreover, due to the cryptographic nature of cryptocurrencies, a government body can’t tax or confiscate tokens without the owner’s cooperation.
This property makes crypto attractive to people worried about hyperinflationary events, bank failures, or other disaster scenarios. Bitcoin, in particular, has attracted attention due to its deflationary and censorship-resistant properties, leading proponents to describe it as “digital gold.”
Trading is not restricted to borders, transparent and secure.
Cryptocurrencies are used and accepted globally. They don’t have any restrictions in terms of borders. Their value won’t differ from country to country.
The accessibility of crypto trading makes it highly flexible for traders to organize their trading during any part of the day. Besides, there are several altcoins, which increase the potential to gain wealth and help traders diversify their portfolios.
What Can You Buy With Cryptocurrency?
At this point, most people still see cryptocurrencies as an investment. But cryptocurrency is quickly gaining speed and becoming more widely accepted as currency. And that could become even more popular as these cryptocurrencies keep gaining trust.
Some major retailers, like Whole Foods, Nordstrom, Etsy, Expedia, and PayPal, are now letting people pay using crypto. And, of course, any two people who value the tokens can exchange them for goods or services with each other. And let’s not forget the whole cryptocurrency digital art craze called NFTs, where you buy digital art with digital money—but that’s a different story for another day.
What are the risks when you invest in cryptocurrency?
Cryptocurrency is unstable
One obvious risk is the massive volatility in cryptocurrencies, which many investors may find hard to stomach. So if you’re going to invest in cryptocurrency, make sure you’re sizing your position appropriately for such downside scenarios, and please, do not use leverage. A severe drawdown while using power could force a margin call, which means you would have to sell your cryptocurrency at the worst possible time to cover debts.
Cryptocurrencies have an unproven rate of return.
Trading in cryptocurrency is exchanged from person to person without any real regulations; there’s no pattern to the rise and fall of its value. You can’t figure out the changes or calculate returns like you can with a growth fund certificate, stock, etc.,
Cryptocurrencies are easily hacked if not stored carefully.
Cryptocurrency does not rely on a central intermediary; it falls on the user to safely store the cryptographic keys which control their blockchain address. Investors who choose to explore the digital currency space should know that several special security measures are necessary.
Theft remains one of the most common threats to cryptocurrency users, and hackers have stolen tokens worth billions of dollars from exchanges, wallet software, and ordinary users. In addition, there are also some cases of investors being scammed when participating in fake ICO projects, or clicking on strange links, sending money to unknown accounts.
What are the notes when investing in cryptocurrencies?
Before taking the plunge in cryptocurrency trading, it’s, however, prudent to follow this checklist of dos and don’ts:
- First and foremost is to ‘Do your own research (DYOR) to eliminate the enormous misinformation and bias around cryptocurrencies.
- Gain awareness about the risks associated with crypto due to its volatility. It’s advisable to invest in cryptos according to one’s understanding of the technology behind the assets.
- Know the role demand plays in the liquidity and stability of a cryptocurrency. The higher the demand and the community backing, the more lucrative cryptocurrency is for the investors.
- Get an understanding of the crypto regulations and ensure that service providers comply with Vietnamese laws. Cryptocurrency has a fundamentally different approach to being a digital asset, and the regulations keep evolving globally.
- Analyze the coin’s supply limit before investing. For example, GIG Dollar is capped at 1 billion tokens.
- Read the Whitepaper extensively on any particular type of cryptocurrency you are interested in buying. Each currency has its own liquidity, which impacts its price volatility.
The world of cryptocurrencies is constantly evolving and is full of opportunities and drawbacks. If you are looking forward to dealing with cryptocurrencies, be ready to handle all possible outcomes.
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