With fast growing technological advancements, it has made things easier for people to work, communicate, shop and pay for goods. With these advancements of course are cashless payments to which people have developed a preference to due to its convenience. With waves of brand-new smartphones available now in the market, a new cashless payment system emerged; one that we call now as cryptocurrencies.
To simplify, cryptocurrencies are electronic money that can be used as forms of payment for online transactions. These transactions are secured and will ensure your protection by hiding crucial information of its users such as your identity.
Research shows that only a few people understand what cryptocurrency is so with that, we’re going to have a more in-depth definition of what cryptocurrency is, along with its advantages and disadvantages to help you to further understand what it is and what is does before even considering it and also for you to know how to keep your cryptocurrency safe.
What is Cryptocurrency?
As mentioned earlier, a cryptocurrency is a virtual currency that is secured by cryptography which adds a level of security making it hard for it to be counterfeited and double-spent. It is designed to work as a medium of exchange and the cryptography is used to secure and verify all of your transactions. Instead of being physical money, cryptocurrencies exist purely as digital entities to an online database.
Basically, cryptocurrency is all about security. But how exactly does it do that? Cryptocurrencies are built using a blockchain technology to manage and record all of your digital transactions. The way these transactions are recorded is a complex process, but it does assure a secure medium that is hard for hackers to tamper with. Aside from that, most transactions do require a 2-step authentication process such as maybe entering a username and a password, or even an authentication code.
Still, cryptocurrencies are not promised to be fool-proof and it has faced quite a few criticisms for reasons such as illegal activities, exchange rate volatility, and the likes.
Usage of Cryptocurrency: Advantages and Disadvantages
There are many ways to use cryptocurrencies but we’ll be focusing on two main ones; payment, and investment.
Right now, cryptocurrency is becoming more and more relevant for online transactions and buying things online. Cashless payment has been the preference of many due to its convenience especially with online merchants now accepting cryptocurrencies such as Bitcoin as a mode of payments. If you’re using other forms of digital currencies such as Litecoin, Ripple, Ethereum, and so on, keep in mind that these are still not widely accepted just yet. Not to worry of course because things are changing for the better and you might see these readily available as payment options in the near future.
In regards to investing, it can be a hit or miss. With it being fairly new in the market, its volatility is what makes it risky and unpredictable. Moreover, it is partly unregulated so there might still be a potential for it to get outlawed in certain jurisdictions. But if you decide to invest in cryptocurrencies, Bitcoin is still the dominant one as it is easier to acquire. As with any investment, you need to pay close attention to its market value with the help you determine whether you’re making a profit or a loss. If you need help with monitoring your digital currency’s value, Coinmarketcap will help you in price tracking, volume, circulation supply, etc., of most existing cryptocurrencies.
- The promise of cryptocurrencies is its convenience without sacrificing security.
- Privacy is one of the main focus of cryptocurrencies and thanks to the blockchain ledger, it makes it more secure than most online transactions. Other than that, cryptocurrencies are fairly easy to use.
- Transactions are lightning-fast and it eliminates the need for excess transaction fees by eliminating third-party mediums. It’s easy to acquire as well since it can be bought using different currencies.
- If there is any downside to cryptocurrencies, it’s that it is susceptible to illegal anomalies such as money laundering, and tax evasion.
- If accessed by the wrong people, it might be harder for the government to track them down due to its high privacy and security.
- Do take note that its high security doesn’t mean it’s unhackable.
- Cryptocurrencies in of itself are secure, but the data from exchanges can be taken by hackers thus giving them access to multiple accounts.
Types of Cryptocurrencies
The cryptocurrency market has exploded since the release of Bitcoin and the overall market value of all is actively moving upwards. Bitcoin, although dominating the market for virtual currency, have acquired a few competitors throughout the years and here are some of them.
- Bitcoin – It is the world’s widely used cryptocurrency. It is known for bringing the movement into the mainstream. Bitcoin is viewed as a legitimate means of exchange and many well-known companies accept it as forms of payments. Its reported supply limit is at 21 million Bitcoins.
- Litecoin – Released in 2011, it uses the same structure as Bitcoin with just a few key differences such as a higher supply limit of 84 million units, a shorter blockchain creation time, and encryption algorithm.
- Ripple – This “consensus ledger” system was released in 2012 and it dramatically speeds up transaction confirmation and blockchain creation times. Ripple is also known to be easily more convertible than other cryptocurrencies.
- Ethereum – This was launched in 2015 in which they notably offer improvements on Bitcoin’s basic structure. One of these improvements is that it utilizes “smart contracts” that enforces the performance of your transactions and it has mechanisms in place in preventing parties from breaking and violating their agreements.
Bottomline: Is Cryptocurrencies Worth Investing in?
Investments come with its risks and it’s no different from cryptocurrencies. Despite the risks, virtual currencies are hot on the market so it’s definitely worth the shot if you do it right. The real question is how to keep your cryptocurrency safe? Again, with potential hacking and its volatility, the more you know, the least you’ll be likely a victim of huge loss.
First of all, do your research before even investing a cent. It does take a lot to comb through prospects but it is an essential thing to do in order for you to successfully make a profit instead of dealing with a huge loss. Next up is you should know how to diversify your investments. Considering the volatility of cryptocurrencies, diversifying your investment strategy will help you yield a higher return even if there are dramatic swings in prices. Do take note that investing in something new comes with plenty of challenges so better be prepared.
With all that being said, cryptocurrency is an exciting concept and it does have its potential. Just make sure you are fully equipped with the proper knowledge before entering this venture as it is practically still a work in progress. Just remember, be smart when it comes to investing so that things would work out in your favor.