What is Cryptocurrency?
Cryptocurrencies are digital assets people use as investments and online transactions. Crypto currency is exchanged from person to person on the internet without involving a middleman or third party, like bank or government.
Is Cryptocurrency an Investment or Just a Currency?
A currency is usually stable and regulated. It helps you to buy goods and services. Crypto currencies do not have a fixed value and are volatile. In present times, in India, you cannot buy air conditioner, TV etc with crypto.
This brings us to the conclusion that cryptocurrency cannot be considered as currency right now. By the time it becomes an actual currency, its status will be equivalent to gold in older times. It can be considered more of an asset. You cannot buy items in market by trading shares.
How are They Stored?
Cryptocurrencies are stored with the help of a digital wallet- usually in an application or through the vendor from where you purchase your coins digitally. Such wallet has a private key (a unique code which is entered to digitally sign off purchases).
Cryptocurrencies use block chain technology. Block chain is a long receipt that continues to increase with every exchange of crypto. It is a public record of all digital transactions via cryptocurrency.
Problems Faced While Handling Cryptocurrencies
One of the most impressive and unique aspects of cryptocurrency is also a significant liability. Crypto currency does not really depend on a central intermediary; it falls on user to safely store cryptographic keys which control their block chain address.
Investors who wish to explore digital currency space should be aware that many special security measures are absolutely necessary, and that even those measures may not efficiently protect their holdings against hackers constantly working to redefine techniques.
Theft is one of the most known threats to cryptocurrency users, and hackers have stolen tokens worth around billions of dollars from exchanges, wallet software, and ordinary users. Also, there are a number of schemes and techniques to trick users into giving up their tokens, such as doubling scams, social engineering, market manipulation, and even fake ICOs.
But another major threat is the users themselves. Unlike other applications, most of the digital wallets cannot be reset if one forgets the password. Users have lost hundreds of millions of dollars’ worth of cryptocurrency due to forgotten passwords or lost devices.
Risks Associated With Crypto
1. Crypto currency is unstable
The value of crypto currencies goes through extreme highs and lows. A recent study by Piplsay concludes that almost 50% of Americans believe that investing in crypto can be considered safe. Crypto currency definitely isn’t a sure thing, it carries a huge amount of risk. Every investment comes with some level of risk factor.
2. Crypto currency has lots of unknowns
No one even knows who found the Bitcoin! There is a very small percentage of people in the world who are actually able to comprehend and understand the system and know how to operate it. Ignorance makes you vulnerable.
3. Crypto currency makes fraud easier
All it takes is few minutes on the internet to know that not everyone has your best interests at heart. Scammers stop at nothing to get access to your personal information and passwords - including your bank account. Cryptocurrency makes it that much easier for them.
4. Crypto currencies have an unproven rate of return
Trading in cryptocurrency is kind of like gambling. Since it’s exchanged from person to person without any particular rules and regulations, there’s no specific pattern to the rise and fall of its value. One can’t always guess the changes or calculate returns like you can with growth stock mutual funds.
Should you Invest in Cryptocurrency?
Cryptocurrency is a new investment platform that has invited many investors and encouraged them to invest more money. Before investing, it’s important you should know what you are getting into. They should know the risks and benefits of prior to investing their money.
Owning some cryptocurrency can increase your portfolio's diversification since crypto currencies such as Bitcoin have historically shown almost no price correlation with the U.S. stock market.
If you think that the use of crypto currencies will continue to expand over time, then it probably makes sense for you to buy some cryptocurrencies outright as part of a diversified portfolio. You must make sure that for every cryptocurrency that you invest in, you should have an investment thesis on why and how that coin will stand the test of time.
Cryptocurrencies are a type of transformative technology that can revolutionize various industries, as they cannot be printed or seized. These currencies might also provide a safe space to store of value. However, they remain highly speculative and there is no assurance of mainstream usage achievement. There are many complex security protocols that should be followed wisely before using crypto currency.
Written by - Tanvi Mohanty
Edited by - Isha Singh
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