What is cryptocurrency?
Simply put, cryptocurrency is a digital medium of exchange that can be used for purchasing, exchanging, selling products and services and investment. It has no physical form, only existing in virtual space. One advantage of cryptocurrency is it’s encryption, which prevents fake identical transactions, equating to fraud. (Rossow, 2018.) Cryptocurrency transactions are also anonymous, protecting the identity of the traders but also making it harder to regulate and watch over. As a result of the lack of liquidity in the market, cryptocurrencies are very vulnerable to speculation and their prices can fluctuate wildly. (Solon, 2017.)
Advantages and disadvantages
A big advantage of cryptocurrency transactions is their security. It’s system is permanent and unalterable, making it unhackable. Another thing cryptocurrencies have going for them is their independence. Since they’re not directly regulated by governments or banks, they’re completely independent of other systems that are subject to more regulation. (Johansson, 2018.) Theoretically this makes cryptocurrencies an even more valuable asset to own, since its price won’t be affected in the same way as other investments.
Cryptocurrencies come with their fair share of disadvantages as well. Because of their volatility, they don’t suit low-risk investors. Cryptocurrencies are also very uncertain because of their novelty, when governments and their regulations catch up with the technology, their actions might heavily impact the system. Cryptocurrencies are also very competitive with more and more new ones popping up all the time, with most of them being very risky and uncertain investments. (Johannson, 2018.)
China has also recently banned initial coin offerings (ICOs), which are equivalent to initial public offerings for cryptocurrencies. South Korea is also considering closing cryptocurrency exchanges, which would further limit their use and weaken their position. (Grant, 2018.)
Should you invest in cryptocurrencies? There are a lot of got-rich-quick stories but at least double the number of ”lost everything” -stories about cryptocurrency investment. While cryptocurrencies have been booming for a while, they are still relatively very new, making them risky and wildly speculative. While they may seem difficult to understand, cryptocurrencies might be more and more relevant in the future, especially in finance and investment. The Internet is full of information about them if you want to learn more but stay critical and avoid sites that are pushing an agenda, either for or against cryptocurrency.
All sources are from well-known business magazines.
Grant, Clark 2018. How China’s Stifling Bitcoin and Cryptocurrencies. Bloomberg Technology. https://www.bloomberg.com/news/articles/2018-01-09/how-china-s-stifling-bitcoin-and-cryptocurrencies-quicktake-q-a Read 24.3.2018.
Johansson, Anna 2018. Should You Diversify Your Portfolio With a Cryptocurrency? Inc.
Rossow, Andrew 2018. Decoding Crypto. Forbes. https://www.forbes.com/sites/andrewrossow/2018/02/08/decoding-crypto-5-things-millennials-should-know-before-investing-part-1/
Solon, Olivia 2017. A simple guide to Bitcoin. Wired.