Pros and Cons of Using Cryptocurrency
One of the most popular directions which new-age investors are going is Cryptocurrencies. You may have heard about various cryptocurrencies and how they have made people millionaires in just a few days. This, along with the increasing imbalance between their demand and supply equilibrium have made crypto highly volatile, making for an attractive asset class for investors.
With this increasing attraction and related volatility, investors who want to allocate their capital to cryptocurrencies are mostly confused about the concept and the advantages of using cryptocurrencies. Before you use or invest in cryptocurrencies, it is wise to know about the pros and cons of using cryptocurrencies.
This blog will define cryptocurrencies along with the pros and cons of using cryptocurrencies.
What are Cryptocurrencies?
Money, but virtual–that’s the main idea behind cryptocurrencies. They are defined as the digital version of money that is created and held as virtual coins or tokens. Similar to how you use digital payments using the Indian rupee, you can use cryptocurrencies to buy and sell items. However, the person or the business must be willing to accept the cryptocurrency you are offering against the products or services they are selling.
Although cryptocurrencies sound similar to digital payments, they differ because of the technology they use and the asset they rely on. Furthermore, unlike the Indian rupee, where you can physically take out the cash if wanted, cryptocurrencies have no physical presence. Meaning there is no way you can do physical transactions using cryptocurrencies. Everything is done virtually without any physical factors.
There are hundreds of cryptocurrencies available in the market where the investor can buy and use them to either trade or buy and sell items. Some examples of cryptocurrencies are Bitcoins, Ripple, DogeCoin, Ethereum, Litecoin etc.
Pros of Using Cryptocurrency
Here are the pros of using cryptocurrencies:
- Minimal transaction cost:Sending money online through a bank gateway is time-consuming and expensive. On the other hand, cryptocurrencies come with little to no transaction cost as there the commission levied is negligible.
- 24/7 access to money:Money invested in share markets or credited in bank accounts has a specific timeline for transactions. With cryptocurrencies, a person has 24/7 access to money without any specific timeline to transact or utilise the money invested.
- Unlimited transactions: With cryptocurrencies, you can pay or send money to anyone, anywhere and anytime, irrespective of the location of the other user. However, they should be willing to accept the payment in the said cryptocurrency. As there is no central authority to control or resist the transactions, you can make unlimited transactions.
- Faster International transactions: With cryptocurrencies, the time taken to process a transaction is relatively low. If you are sending money online to another country, blockchain technology processes the transaction within seconds and in the most secure way.
Cons of using Cryptocurrency
Here are the cons of using cryptocurrencies:
Highly Volatile: Cryptocurrencies are one of the most volatile asset classes in the whole financial market. Although this volatility and the resulting price fluctuation allows investors to make profits, it can also force them to incur massive losses if the price fluctuation is negative.
No Literature: Unlike stocks, where you can do technical and fundamental analysis to understand the current trend and predict the future trend, there is no method to know cryptocurrency trends. As there is no literature, investors can’t effectively analyse and evaluate a cryptocurrency, resulting in highly speculative investing.
No regulations: Currently, there are no rules, guidelines or a regulatory body to govern the working of cryptocurrencies. This has resulted numerous times in investors losing their money to scammers or cryptocurrencies that are made for raising funds for illicit activities. As you can never know who you are selling or paying to, there is a big concern on how the money is used on the other side.
Cyber Attacks: Everything digital is always vulnerable to cyber attacks. However, cryptocurrencies such as Bitcoin, Ethereum etc., which are high in demand and value, witness significant attention from cybercriminals. In case of a cyber-attack and no regulatory body, it becomes next to impossible to retrieve the lost money, which can force you to lose your personal data along with the invested capital.
Cryptocurrencies have become a fan favourite in India, with the country becoming the biggest crypto holder. The unprecedented demand is owed to youngsters who are looking for quick returns based on the high volatility, liquidity and simple-to-use crypto platforms. However, as there is no way to analyse and evaluate the investments, crypto investors should follow extreme caution while using cryptocurrencies. It is wise to deeply understand the advantages of using cryptocurrency along with its disadvantages before you invest.
Frequently Asked Questions Expand All
Being unregulated, there are no rules on how they can be used. They are highly volatile and prone to cyberattacks. Furthermore, there is no technique to predict the crypto trend, and you can incur huge losses.
As they are highly volatile, the price fluctuation is immense. If it is negative, it can force you to lose all of your capital. Furthermore, as the RBI does not support cryptocurrencies, there is a high possibility that they could be banned.
Cryptocurrencies can indeed allow you to make good profits. However, you must have a high-risk appetite. Analysts say that asset classes such as equities are a far better investment than cryptocurrencies.