What to consider when investing in cryptocurrencies
Cryptocurrencies have hit hard. Of course, they attract and fill with curiosity many investors, both regular and new, as there is a lot of attraction from young people.
From Coininvest they offer some tips when investing in cryptocurrencies:
- Direct control: cryptoinvesting provides total independence and control. No need to deal with banks or other financial institutions.
- Transparency: blockchain technology monitors and records every transaction in a fully transparent system. They cannot be modified or changed once completed.
- Simplicity: generally simple and uncomplicated compared to investments such as stocks.
Challenges of cryptocurrencies
Many cryptocurrencies use blockchain technology, which is a decentralized system that tracks the transaction of digital assets. As complex as the technology is, infrastructure augmentations that seek to boost scalability have become potential vulnerabilities.
To meet global demand, cryptocurrencies like bitcoin rely on off-chain transactions, where users buy and sell coins, undermining the fundamental purpose of using the technology in the first place. Off-chain transactions introduce security flaws, as they can be modified before being written back to the blockchain, allowing foul play with people's money.
Blockchain transaction processing for bitcoin exchanges is also inefficient and time- and energy-consuming. In fact, it was shown earlier this year that bitcoin consumes more electricity per year than the entire country of Argentina. Despite massive energy consumption, less than 10 transactions are written on a blockchain per second, leading critics to accuse cryptocurrency miners of reckless environmental damage for a purely speculative asset.
Instability is an inherent part of the crypto world
Cryptocurrencies, unlike precious metals, have no intrinsic value. They serve no purpose other than as a vehicle for exchange. And because they are considered investment assets, as anyone from casual investors to institutional investors see the returns they can earn by dabbling in crypto, they remain highly unpredictable, rising when it's trendy and plummeting when people cash in on their investment. For example, Bitcoin's price halved between February and March last year, quadrupled by the end of the year, set record highs in January and then plummeted 15% just a few months later. Physical precious metals, on the other hand, can be found in medical equipment, electrical devices, jewelry and elsewhere. This means that there is always a constant demand for the precious metal, which keeps precious metal prices relatively stable.