Investing in Cryptocurrencies? Here’s What You Need to Know
Cryptocurrency is definitely the hottest financial trend in the global market right now. With millions of investors and a potential to grow even bigger in the coming years, it’s easy to get carried away easily.
However, if you’re a current investor (or you have plans of investing in it), here are a couple of things you need to know:
Cryptocurrency has a lot of benefits, including but not limited to
It is a way to protect against political instability.
Cryptocurrency has been seen by many people as an excellent way to keep wealth tucked away from the risk of the volatility that has rocked regular currency. The whole deal of keeping wealth might not necessarily mean much to most people in Europe and North America (due to the fact that their currencies are fairly stable), but there are many countries that have a lot of political instability (which, in turn, translates to financial and monetary instability). To citizens of these countries, cryptocurrency is a means of protecting assets and keeping them from the crippling effects of government and bank system failure. If you live in a country where the value of your official legal tender seems to take constant dives in the global economy, you can protect your assets with cryptocurrency and also purchase assets that are out of the reach of the government.
You don’t have to pay any taxes on your profits
Due to the fact that cryptocurrency is not the property of any one country and is not particularly recognized as a real investment, you’re not obligated to pay any taxes if the value of your crypto assets continues to go up. This basically means that everyone who was able to get a piece of the pie when Bitcoin rose to the stratosphere (well over 1,000%) last year can get their cash without paying a dime to the government. Apart from Tax-Free Savings and Roth IRA, there aren’t many tax-free investment portfolios out there. Cryptocurrency, however, is definitely one of them.
Anonymity and discretion
Cryptocurrency is an anonymous currency. This is actually a characteristic that made it very desirable in the first place. There is a record of every transaction embedded in every coin, but it’s encrypted, and this means that you can’t know who transact in what.
This anonymous characteristic is the utter contrast of the traditional methods of making payments (like credit cards). These payment methods keep records of data about both the buyer and seller. The anonymity that cryptocurrency provides is definitely a major advantage, especially as most people like to keep information about their transactions private.
Optimum safety from fraud
Cryptocurrency is anonymous and transactions occur hand-to-hand. This means that there is no way for a person to counterfeit it. This major advantage essentially means that merchants and shoppers will be able to enjoy high-quality transactions, especially in the world that we live in (which is riddled with fraud, theft, and counterfeit credit cards and legal tender).
We’ve established the fact that no country or government can lay a claim to cryptocurrency. This fact means that it can be used all over the world. As long as a country is able to adopt it, cryptocurrency can be accessible to a country. As at now, though, anyone with a stable internet connection can buy cryptocurrency, subject to the nation’s acceptance of it.
The risks of investing in cryptocurrency
Unfortunately, the list of downsides that you face with cryptocurrency is quite extensive. However, it is essential that you are aware of all these before you decide to invest in it.
The issue of volatility
Although the journey of cryptocurrency (well, the most popular of them, at any rate) has been a relatively smooth one, it is worth noting that the journey has had some pits and low points as well. The price of a crypto asset can fall up to 30% in a day, and this can cause serious panic. We all love it when an investment increases in value, but you also have to be ready for certain flops as well. A lot of people believe they can handle risks, but all it takes is a day (or in the case of cryptocurrency, a couple of minutes) for them to begin panic-selling.
The ever-present threat of theft
Cryptocurrency is digital-based, and this means that there is always the risk of the almighty threat; hackers and viruses.
Hacking is the biggest cryptocurrency risk, and it usually affects merchants who don’t know how to effectively protect them. An average computer user uses a floppy password and is oblivious of many online vulnerabilities that he (or she) faces. This vulnerability leaves their crypto assets up for quick grabs.
One of the easiest places where your cryptocurrency can get lost is the exchange where you buy and sell. In a recent hack, a crypto exchange platform known as NiceHash was hacked and crypto assets worth about $60 million were stolen. Remember that cryptocurrency is unregulated. This means that it is also an uninsured asset, and once you lose it, there really is no way of getting it back (well, except the thief grows a conscience and gives it back; which is highly unlikely)
The incidence of accidental loss
It is also not impossible for you to be your nemesis when it comes to safeguarding your digital assets. If you have a password that is so complex that you manage to forget it, hackers won’t get to it… but neither will you. This means that your crypto assets are good as non-existent.
Over the years, a lot of people have complained about locking themselves out of their hardware and digital wallets, all but leaving their crypto assets ownerless.
Know that misplacing a crypto asset isn’t the same as leaving some cash in the left back pocket of your pants. With the latter, it’s possible you get the cash back. With the former, it’s as good as gone.
The persistently limited utility
One of the biggest challenges that you’ll face when using cryptocurrency is the fact that there are still a lot of places where you still can’t spend it. Apart from a few online retailers that take Bitcoin, there are very few places where you can use cryptocurrency generally as a means of payment.
Now, that’s for Bitcoin; the most popular of all cryptocurrencies. When you put digital currencies like Ripple and Bitcoin Cash into the equation, it gets even worse. These ones hardly hold any retail value even though their prices are actually acceptable (As a matter of fact, the only crypto assets that are accepted by the already few retailers are Bitcoin Ethereum, and Litecoin, as these are the most popular).
You can’t use cryptocurrency to buy foodstuff or pay your utility bill, and this fact serves to defeat its whole purpose as a “currency”. If you can’t use crypto in exchange for any goods and services, en what’s the point of it being a currency?
Investors are actually indirectly contributing to illegal and illicit activities
Due to the fact that cryptocurrencies are anonymous in nature, they are favored among sellers and traffickers of sex, weapons, and drugs all over the world (as a matter of fact, Bitcoin became famous for its use on the dark web). You might want to reconsider your purchase of cryptocurrencies if you knew that many of them actually go to bankrolling terrorist activities.
To put it in plain language, the increased value of various cryptocurrencies due to the increased demand for them by common people like you and me has made a lot of bad, fat cats even fatter (and probably worse as well). If you’re morally up for participating in the massive global cryptofrenzy, that’s really up to you. Just know; a lot of it is unclean cash.
The contribution to environmental destruction
Here’s one of the lesser-known facts about cryptocurrency: although there’s a lot of techy jibber jabber that usually surrounds blockchain technology, the process of mining cryptocurrency is usually very energy-intensive. Simple and straight!
If you’re the usual tree-loving, eco-friendly, zero-footprint type of person who lover conserving the environment and protecting Mother Nature, then you’ll be gutted to know that your use of cryptocurrency is actually quite hypocritical. Bitcoin alone consumes enough power to cater to the energy needs of over 2 million homes. There are other cryptocurrencies that show a lot of potentials and are also less pollutive, but the major point of focus is on Bitcoin; one of the biggest environmental offenders in the world.
Hoarding and excessive keeping
When you end up keeping your crypto asset and refuse to make use of it, then the “currency” tag in cryptocurrency can be called into question. Apart from the worldwide volatility in the value and prices of crypto assets, there are only a few retailers that accept cryptocurrency all over the world, and this means that a lot of people are buying with the intention of storing it. This phenomenon is turning cryptocurrency into more of a storage asset. In truth, this isn’t wrong. However, you also have to remember that the way you use something goes a long way in determining how it is regarded and valued.