The Pros And Cons Of Cryptocurrency: A Guide For Newbies

Blockchain technology could completely reshape the financial world as we know it and challenge the very concept of traditional financial infrastructure. However, what are some of the pros and cons of cryptocurrency? If you are going to invest in one, how do you choose?

Cryptocurrencies may seem complicated to you, but don’t worry. Throughout this article, you’ll be able to learn the advantages and disadvantages of cryptocurrency. 

The 7 Advantages of Cryptocurrency

The benefits of cryptocurrencies, which were created relatively recently (Bitcoin, for example, was established in 2009), clearly make them a viable alternative. Cryptocurrency has plenty to offer, including stellar returns, 24/7 trading, and ultra-secure, transparent infrastructure. If you know how to take advantage, it can be quite lucrative.

1. the potential for high rewards

The market for cryptocurrencies is over 10,000 today, and each one has its own characteristics. In general, cryptocurrencies share a few characteristics — like their tendency to experience sharp fluctuations in value. In order to determine the value of Bitcoin, miners supply coins and purchasers demand them. A combination of supply and demand can lead to substantial returns. For investors who got on board at the right time, Ethereum‘s price nearly doubled between July 2021 and December 2021.

2. Blockchain technology is inherently secure 

The foundation that supports cryptocurrencies is what brings many of the benefits of cryptocurrencies, not the currencies themselves. Hence, blockchain, the digital ledger that stores all transactions in a decentralized manner. It is impossible to remove data once it has been entered into the blockchain. The blockchain is decentralized across multiple computers so it can never be accessed in one go by a hacker; all data stored in it is safe.

3. Goodbye traditional banks, hello fair and transparent financial institutions

The majority of transactions in our financial system are processed by third-party intermediaries. In other words, if you make a transaction, you are placing your trust in one or more of these intermediaries – and the recession in the early 2000s caused many to question whether that would prove prudent. Cryptocurrencies and the blockchain are alternatives. Anyone can view them anywhere, so you are able to participate in the financial markets and make transactions without any intermediaries.

4. Cryptocurrency trades happen round-the-clock

Additionally, crypto markets are always open, so cryptocurrencies have an advantage over banks. If you want to buy, sell, or trade crypto, you don’t have to wait for NYSE, NASDAQ, or any other exchange to open up for trading. Coins are mined and transactions are recorded around the clock. The effect of this has been so significant that even regular stock exchanges are exploring the idea of trading stocks outside of normal banking hours -although that might not be feasible for some time to come. Thus, cryptocurrency may be the best option for investors who are constantly on the go.

5. Investors can use cryptocurrencies to beat inflation

In contrast to, say, national inflation, the value of cryptocurrencies is based on global demand, not one specific currency or economy. But what about cryptocurrency inflation itself? Investors are generally safe from cryptocurrency inflation. There is a cap on the number of coins, so inflation cannot occur. The approach keeps inflation at bay whether the cap is on an overall basis (like Bitcoin) or an annual basis (like Ethereum).

6. Personal information privacy

The retailer should have your credit card if you wish to make a purchase from them with a credit card. The merchant requires you to present your pin code before making a purchase. Would you prefer this method? 

It is obvious that your pin code is highly confidential, and you are not required to disclose it. The same applies to cryptocurrencies. The private key is private and should not be disclosed. You can make money completely anonymously; no one will be able to see what you pay, and your information will never become public. So, it is one of the best methods for paying anonymously.

7. Instant and secure transfer

You have a valuable asset if you have cryptocurrencies in your digital wallet. It’s easy to give it to anyone you want without their knowledge. If you want to transfer money, you will need the other person’s private key. You will not be charged for transferring ownership, you will not be stressed, and you will not need to document anything. The payment of commissions is substantially higher than that of other situations, such as property transfers or bank account closings.

The 7 Disadvantages of Cryptocurrency

That’s a lot of glitters, but are cryptocurrencies really going to be so golden? Let’s consider some of the risks. The easy ones are easily resolved, the difficult ones are not so easily resolved-but it’s always worth keeping them in mind.

1. Understanding cryptocurrency takes time and effort

Cryptocurrencies can be complicated to understand at first. It can feel foreign to people who aren’t digital natives to think about cryptocurrencies (let alone blockchains). As a result, investing in something you’re not familiar with is a risk in itself. If you are considering investing in cryptocurrency, you will still need to consider the pros and cons of the investment before you decide whether to proceed. There is a number of online resources to help you (including N26’s cryptocurrency blog series).

2. Cryptocurrency can be a volatile investment

Cryptocurrencies are volatile – while they can reach dizzying heights (and benefit investors) they can also plunge to incredible lows just as quickly. If your goal is to earn stable returns, then investing in this may not be the best option. Since the cryptocurrency market is fundamentally a speculation market, it is highly susceptible to price fluctuations due to its relatively small scale. As a result, cryptocurrency can lose its value, which is one of its major drawbacks.

3. As of yet, cryptocurrencies have not proven themselves as long-term investments

It’s worth remembering that cryptocurrencies have only been around for just over a decade, even though they are becoming increasingly popular. Bitcoin was only clearly outlined in a white paper published in 2008. By contrast, the stock market has a century-long history. According to the London Stock Exchange, the first trading day of the London Stock Exchange took place in 1801. For millennia, gold has served as a symbol of value. But cryptocurrency? You need to be brave if you want to invest in these uncharted waters as an investor because nobody knows what the future holds for cryptocurrencies.

4. Crypto has serious scalability issues

You could be forgiven for thinking that digital currencies operate at lightning speed—and they do, up to a point. But at a certain level, they run into major issues which make it difficult to roll them out on a large scale. Cryptocurrency providers themselves admit this is an issue, with the people behind Ethereum saying that the blockchain has reached “certain capacity limitations” that slow the rate at which transactions can be processed. This can be a frustrating experience for transaction participants, to say nothing of the potential financial losses it can cause.

5. Security risks are high for crypto newbies

However, cryptocurrencies don’t come without their own security risks; however, they don’t have the risks of central intermediaries. A crypto owner can lose the key that gives them access to their coins – and with it, all their holdings. Furthermore, there are hacks, phishing attempts, and all the other ways to gain control. The more experienced investors are aware of this kind of trap, but new investors are more susceptible to it.

6. Chance of Performing Illegal Activity

Unlike conventional money, bitcoin transactions are very secure and anonymous, making it difficult for authorities to trace users based on their wallet addresses. On the dark web, Bitcoin has been used to purchase narcotics, among other illicit activities. A few people hide the source of their illegally obtained money by converting their money with cryptocurrency through a reputable intermediary.

7. High Loss Risk

It’s the lack of control over cryptocurrencies that puts you at risk. Things can go wrong for any number of reasons. It is impossible to prevent your bitcoin from losing value if there is a technical problem with the wallet. The money is not controlled by any company. It’s impossible to report a problem to anyone if you are experiencing one. To avoid scams, make sure the wallet you choose is trustworthy and has good ratings. Another thing to consider is to know what the cryptocurrencies regulations in your country are before you use them.

What are the pros and cons of bitcoin, though?

A number of benefits come along with Bitcoin, which is abbreviated as BTC. The cap of 21 million coins, the inflation-proof guarantee, and its headline-grabbing price certainly offer investors a chance at making a profit. Additionally, Bitcoin is widely accepted as a means of payment. 

There are, of course, drawbacks to it. Once bitcoin’s blockchain infrastructure reaches a rate of seven transactions per second, it starts to slow down (a major issue, since Visa processes about 1,700 transactions per second). As the most famous cryptocurrency of them all, Bitcoin is a prime target for hackers and scammers of all stripes.

What is the best cryptocurrency to invest in?

Among the various cryptocurrencies, there is no cryptocurrency that is significantly superior to all others. There are a few things to look out for, but it comes down to your personal preference. You should consider your individual risk tolerance: 

• Do you feel comfortable losing a substantial chunk of your investment if the coin you choose plummets in value? 
• What is your purpose for using the coin? 
• Are you only hoping to generate returns with it, or are you hoping to also use it to pay for things? 

You might be interested in investing in a coin that has a greater social or environmental impact, or just the money. You can choose to invest in Bitcoin since it is the market leader. A cryptocurrency is the original, and it has developed the most comprehensive information base.

Final Words

There may still be some doubt in your mind about investing in cryptocurrencies. Generally, we believe that the benefits outweigh the risks, although it depends on what you’re trying to accomplish. Most people use bitcoins to make purchases these days, despite the fact that many use cryptocurrencies for income through trading or investing. 

During the past few years, the value of cryptocurrencies has increased, and this trend is expected to continue. By investing in cryptocurrencies now, you might be able to reap rewards in the future.