Richard Lichman looks at the world of cryptocurrency.
You’ll have undoubtedly heard of cryptocurrencies such as Bitcoin and Ethereum – but what actually are cryptocurrencies and are they a sound investment?
You’re probably aware that cryptocurrencies are virtual, but did you know this means that they have certain benefits over other traditional currencies? Digital cryptocurrencies are secured by cryptography, making them virtually impossible to counterfeit or double spend. Furthermore, as these currencies aren’t tied to a specific country or any central authority, this means that they are effectively immune against government interference.
Many crypto currencies are decentralised networks based on blockchain technology. In simple terms, a blockchain is a distributed database that is shared across nodes of a computer network. Due to the unique way that a blockchain stores data, it guarantees a secure record of data that eliminates the need for third parties during transactions, making cryptocurrencies a very secure and trustworthy choice.
The benefits of cryptocurrency
There are many features of cryptocurrencies that make them an appealing choice for investors. The first of these is that Bitcoin and other digital options have few fees associated with them. As anyone who invests in other currencies will know, the fees incurred during trading and other actions can soon become substantial, so being able to sidestep these is a significant advantage.
As previously mentioned, cryptocurrencies aren’t tied to a specific government. For some people this means that they seem a safer way to protect their wealth, especially should they have concerns that any changes in the country they live in could result in banks collapsing or other potentially catastrophic financial events. There’s also a certain level of safety some people enjoy of not being tied to a currency that is deeply entrenched in the politics or movements of a country that are beyond their control.
For these reasons, it is now estimated that there are over 300m people using cryptocurrencies in the world.
Due to the number of people now using cryptocurrencies, they are integrating into our daily life more than ever. People can now use crypto to purchase items on websites, plus it’s easy to attain – there are even talks that there may soon be cryptocurrency debit cards and other tools that will help to spread the mainstream use of these options even further.
There’s also the fact that cryptocurrency is now considered by many as the future of trading and investments. As blockchain is set to revolutionise how trading works, individuals are keen to keep at the cutting-edge and adopt the newest methods.
The risks
Of course, as with any financial venture, cryptocurrency comes with risks. These currencies are currently unregulated in the UK, meaning that when people invest in crypto there is always a substantial risk. The market for these currencies is also volatile, and even well-established currencies such as Bitcoin can fluctuate significantly.
Indeed, at the time of writing, Bitcoin and several other cryptocurrencies have experienced a sudden crash, leading to the loss of millions. This crash occurred after an up-spike in their worth, showing exactly how temperamental these investments can be.
Another thing to bear in mind is that not all cryptocurrencies are equal, and there is every chance that a whole currency will crash out of existence. For instance, following the runaway success of the TV series Squid Game on Netflix, a cryptocurrency based on the show was created. After the currency had substantial investors, the currency was purposefully crashed, allowing the creators to walk away with millions.
That’s not to say that cryptocurrencies don’t come with huge benefits, and there have been a significant number of individuals who have made their fortunes by trading within this arena. It’s all about remaining smart, listening to the experts and planning responsibly.
Despite their growing popularity, cryptocurrencies remain just one option for individuals looking to invest. As always working with a financial adviser, such as those at money4dentists, will help you assess the risks and make the right decision for you.
The future or just a fad
Ultimately, it looks like cryptocurrencies are only going to continue to grow in popularity, especially as they make use of innovative data systems such as blockchain and are becoming more widely accessible. It’s always a good idea to seek advice before making any investments, so by speaking to the experts and exploring the possibilities, there’s no reason why something like cryptocurrencies can’t be a lucrative decision for you.
References available on request.