Although many have frequently seen the term cryptocurrency while scrolling through social media, in blog posts, or heard about it in podcasts, it is still unknown to many.
Simply put, a cryptocurrency is a form of money different from traditional print money or the digital format of that currency. To be precise, cryptocurrency is a decentralized, digital, and encrypted form of cash. Any central bank or authority does not regulate cryptocurrencies.
The “blockchain technology” that enables cryptocurrencies to exist is what distinguishes them from other forms of money. It only signifies that it is built on a highly intricate web network dispersed over several computers, making it exceedingly difficult to forge or double-spend. It also implies that these currencies may be maintained and valued purely by their users as they are independent of governing bodies and central entities.
Nowadays, cryptocurrencies come in hundreds of variations. However, since it was the first to go live about ten years ago, “Bitcoin” is the most well-known. Ethereum, Litecoin, and Zcash are just a few of the current popular alternatives.
While most cryptocurrencies share the same decentralized architecture and blockchain technology, they also differ in many ways. These variations are primarily the result of various coding and algorithms, or in other words, extremely technical stuff. Therefore, if one is considering purchasing any, it’s crucial to conduct an adequate study into each factor because they will affect how broadly they are accepted and whether or not they will increase or decrease in value.
Bitcoin uses a “mine,” a typical method for creating the currency, where computers answer challenging riddles throughout the energy-intensive mining process to certify the legitimacy of network transactions. As a result, the owners of the devices can obtain freshly created bitcoin as remuneration. Other cryptocurrencies make and distribute tokens differently, and several have a significantly smaller environmental influence.
Supporters are rushing to purchase cryptocurrencies like Bitcoin now, presumably before they increase in value, as they are seen as the future of money. In addition, some cryptocurrency proponents prefer that central banks are no longer in charge of controlling the money supply since, over time, these institutions tend to devalue currencies through inflation.
Some people view cryptocurrencies as a good entry point for communities underserved by the traditional financial system. In addition, because it is a decentralized processing and recording system and has the potential to be more secure than conventional payment methods, some proponents of cryptocurrencies favour the blockchain technology that underpins them.
Some investors favour cryptocurrencies because they are increasing in value and are not concerned about the currency’s long-term adoption as a means of transacting in financial services. In addition, through a practice known as staking, several cryptocurrencies give their owners the ability to generate passive income. Crypto staking entails leveraging one’s digital assets to support blockchain protocol transaction verification. Despite the hazards, staking might let one increase their cryptocurrency holdings without having to acquire more.
In contrast, many cryptocurrency initiatives are unproven, and the widespread use of blockchain technology is still a long way off. As a result, long-term cryptocurrency investors could never get the gains they expected if the fundamental concept did not succeed.
There are additional hazards for short-term cryptocurrency investors. Since its values fluctuate often, many people have profited swiftly by investing in it at the appropriate moment. Moreover, because the servers need a lot of energy to operate, it often harms the environment.
Some cryptocurrencies employ alternative, less energy-intensive technologies. Additionally, since governments worldwide have not yet fully worked out how to control cryptocurrencies, changes and crackdowns by governments might have unexpected repercussions on the market. In Bangladesh, for example, cryptocurrency is illegal, along with many other countries such as China, Algeria, Bolivia etcetera.
Similar to traditional currencies, cryptocurrencies were created to buy and sell goods. However, since they haven’t been widely accepted as legal tender, they are currently limited in what an average user can ‘buy’ with them. So, for instance, we’re a long way from being able to walk into a store and use cryptocurrencies to buy a loaf of bread.
Instead, many individuals now utilize cryptocurrencies as an alternative type of investing since they have the potential to increase in value. People are turning to cryptocurrencies in the hopes of making a lot of money from them over time, much like someone might buy shares in a company with the expectation they increase in value and can be sold for a profit.
Because of cryptocurrencies’ explosive growth in popularity throughout the first several years, many early adopters could profit handsomely by investing in them. Unfortunately, since then, cryptocurrency has developed a bit of a “get rich quick” stigma.
It’s doubtful that the same growth rate will occur again, and given how volatile cryptocurrencies are right now, investing in them is highly dangerous. Therefore, before beginning to invest, it’s crucial to understand where this money is going since, without the proper understanding, there’s a significant possibility one may lose out.
Whether investing in cryptocurrencies is a good idea depends on one’s goals. Whatever way one looks at it, investing in cryptocurrency is often dangerous. Risk management methods in one cryptocurrency portfolio include diversifying the types of coins one purchases, not investing more than a tenth of their whole portfolio, etcetera. In addition, investing in various goods may protect oneself — to some extent — from losses in one’s holdings as cryptocurrency; assets may rise and fall at varying rates and over varying periods.
To start experimenting with cryptocurrency investments is not something we would advise if, like most of us, one cannot afford to lose one’s money. It’s not the “get rich quick” scheme that many make it out to be; instead, it’s more akin to gambling since anything may happen. Rather, one should see a financial advisor so that they can examine the owner’s finances and pick a better investment choice in keeping with the level of risk one’s willing to accept.
Author- Ahmad Tousif Jami
