Cryptocurrencies are changing the financial world. They are challenging conventional ideas of what an economic infrastructure should look like. If you are considering investing in cryptocurrencies, you may wonder what the pros and cons of cryptocurrencies are and how to decide what currencies to invest in.
Pro and Con: High Risk and High Reward
There are over 10,000 cryptocurrencies available today. Each currency has its benefits and drawbacks. However, all cryptocurrencies experience volatile changes in value. Cryptocurrencies are not backed by anything physical. They have massive spikes and drops in their value.
Prices fluctuate based on the supply and demand of miners and user sentiment about the coin. Price fluctuations are so volatile that investors quickly stand to make or lose a lot of money. For example, between July and December 2021, the price of Ethereum doubled. Investors who got in at the right time made a ton of money.
Pro: Cryptocurrency Technology Is Secure
One of the biggest benefits of cryptocurrency is not the value of the coin but the infrastructure that backs the coin. Blockchain is a decentralized digital storage ledger. It monitors every transaction that happens. When an entry is made on the blockchain, it cannot be deleted.
The blockchain is stored across thousands of computers around the globe. A hacker can’t hack the entire chain. The information stored on the blockchain is safe.
Pro and Con: No Third-Party Intermediaries
The modern financial system uses third-party intermediaries to process transactions. If you swipe your debit card at the grocery store, your bank moves money from your account to the grocer’s account. This does not exist with cryptocurrencies.
Many view this as a pro because people no longer trust private or governmental financial intermediaries. In the recession of the early 2000s, many people doubted if these institutions had their best interests at heart. The regulation-free nature of cryptocurrency is attractive to many.
However, since there is no third-party intermediary, there is no protection. Millions of dollars in cryptocurrency value have been lost because people lost the passwords to their wallets. There is no protection against fraud, which has left some people vulnerable to scams.
Pro: Crypto Trades 24 Hours a Day
The crypto markets are always open. You can take your credit card and go on a crypto exchange and buy cryptocurrency at 2 a.m. if that meets your fancy. Talking about cryptocurrency and credit cards, the financial experts at SoFi Invest said, “The SoFi Credit Card now lets you redeem points straight into crypto. You’ll earn 2% cashback on all purchases and can redeem it directly into crypto with your SoFi active invest account.”
The impact of having the crypto market open 24 hours a day is making some stock exchanges consider the possibility of trading stocks outside of regular banking hours. However, these changes are some ways off.
This is not an exhaustive list of the pros and cons of trading cryptocurrencies. Cryptocurrencies are a complex and unfamiliar with technology. With time and effort, you can learn to benefit from cryptocurrency trading.