Cryptocurrencies have the potential to reshape the financial world as we know it, and to question the very existence of traditional financial infrastructure. But what are the pros and cons of cryptocurrencies? How do you decide which one to invest in—or whether to invest at all?
If you’re a little confused by cryptocurrencies, don’t worry. We’re here to break down the advantages and disadvantages of cryptocurrency, so you can learn everything you need to know. And if you’re still stuck, check out our guide to Cryptocurrencies for Beginners.
5 advantages of cryptocurrency
Despite the fact that cryptocurrencies are a relatively new innovation (Bitcoin, for instance, launched in 2009), they are undoubtedly here to stay due to all of its advantages. The world of cryptocurrency has a lot to offer—if you know how to get into it—from the potential for significant gains to 24/7 trading on ultra-secure, transparent infrastructure.
1. High risk—and the potential for high rewards
There are in excess of 10,000 cryptographic forms of money available today and every one has its own specific peculiarities. However, all digital currencies share a couple of things practically speaking — like their propensity to encounter unexpected spikes (and drops) in esteem. Costs are driven essentially by the stockpile of coins from diggers and the interest for them by buyers. Furthermore, these stockpile request elements can bring about powerful returns. The cost of Ethereum, for instance, generally multiplied from July 2021 to December 2021 — an incredible payday for financial backers who jumped aboard with impeccable timing
2. The blockchain technology underlying cryptocurrency is inherently secure
The infrastructure that underpins cryptocurrencies is responsible for some of their main advantages, not the currency themselves. That is the blockchain, a decentralised ledger for data storage that keeps track of every transaction made there. A blockchain entry that has been made cannot ever be removed. Additionally, because the blockchain is distributed across a number of machines, no hacker can access the entire chain at once, making the information held therein unbreakable.
3. Bye bye traditional banks—hello to a fairer, more transparent financial system
Our financial system is largely based on third-party intermediaries that carry out transaction processing. This means that whenever you conduct business, you’re putting your trust in one or more of these intermediaries, which raised some ethical concerns during the early 2000s recession. An alternative is provided by cryptocurrency and the blockchain. You can participate in the financial markets and conduct transactions without any middlemen because they are accessible to anybody, wherever.
4. Crypto trades around the clock
The fact that cryptocurrency markets are available 24/7 is another benefit cryptocurrencies have over banks. You don’t have to wait for the NYSE, NASDAQ, or any other exchange to start trading for the day in order to buy, sell, or trade cryptocurrency because coins are created and transactions are recorded constantly. Due to the impact of this, normal stock exchanges are considering the possibility of stock trading outside of typical business hours as well—although that may still be some time in the future. Cryptocurrency may therefore be the greatest solution for investors who are always on the road to earn returns outside of regular business hours.
5. Cryptocurrencies could help investors beat inflation
Since cryptocurrencies aren’t linked to any particular country or currency, their price is determined by worldwide demand rather than, example, domestic inflation. But what about cryptocurrency inflation itself? For the most part, you can relax as an investor. There is no inflation because there is a limit on the quantity of coins, which prevents the supply from becoming out of hand. This strategy prevents inflation regardless of whether some coins (like Bitcoin) have an overall cap or annual cap.
5 disadvantages of cryptocurrency
So that’s a lot of glitter, but is the outlook for cryptocurrencies really so golden? Let’s take a look at some of the drawbacks. Some are easily resolved, others less so—but it always pays to keep them in mind
1. Understanding cryptocurrency takes time and effort
Digital currencies can require a long time to get your head around. In the event that you’re not a computerized local, the idea of cryptographic money (not to mention the blockchain) can feel everything except natural. What’s more, attempting to put resources into something you don’t actually comprehend is itself a gamble. There are a lot of web-based assets accessible to help you (remembering N26’s blog series for crypto), yet you’ll in any case have to commit an opportunity to grasp the upsides and downsides of putting resources into digital currency really.
2. Cryptocurrencies can be an extremely volatile investment
While the cost of a digital money can spike to confounding highs (with related benefits for financial backers!) they can likewise collide with startling lows similarly as fast. So on the off chance that you’re hoping to make stable returns, this probably won’t be the smartest option. The digital currency market in a general sense flourishes with hypothesis, and its moderately little size makes it more powerless against cost variances. That thus can unleash destruction with the worth of coins — one of the significant disservices of digital currency.
3. Cryptocurrencies haven’t proven themselves as a long-term investment—yet
While digital currencies have become well known and are as yet acquiring in prevalence, it merits recollecting that they have just been around for a little more than 10 years. The idea just truly arisen with the distribution of a white paper on Bitcoin in 2008. Securities exchanges, interestingly, can think back on hundreds of years of history. The London Stock Trade, for instance, was established in 1801. Gold has been a demonstrated caretaker of significant worth for centuries. However, cryptographic forms of money? No one truly understands what will befall digital forms of money later on — and you should be bold to enter these strange waters as a financial backer
4. Crypto has serious scalability issues
You could be excused for feeling that computerized monetary standards work at lightning speed — and they do, to a certain degree. Be that as it may, at a specific level they run into significant issues which make it hard to carry them out for an enormous scope. Digital currency suppliers themselves concede this is an issue, with individuals behind Ethereum saying that the blockchain has reached “certain limit limits” that sluggish the rate at which exchanges can be handled. This can be a disappointing encounter for exchange members, to not express anything of the potential monetary misfortunes it can cause.
5. Crypto newbies are vulnerable to security risks
Cryptocurrencies might not have the risks that come with using central intermediaries, but that doesn’t mean they’re completely free from security issues. As a crypto owner, you could lose the private key that lets you access your coins—and with it, all your holdings. And then there’s hacking, phishing, and all the other attempts to gain control by malicious means. This is something that seasoned investors keep an eye out for, but newer investors are more likely to be vulnerable to these kinds of traps
What else should I know before trading cryptocurrency?
Cryptocurrencies can be a minefield for new investors. From unfamiliar terminology to complex technology, it’s a topic that takes some getting used to. As with everything, trading cryptocurrencies comes with benefits and risks, but N26 is here to help. Whether you want to pay for everyday essentials with Bitcoin or use another coin to beef up your investment portfolio, we can show you all the pros and cons of cryptocurrency.