Interested in investing in cryptocurrency? Here are some pros and cons

Cryptocurrency has been in the spotlight since its inception in 2009 with the creation of the Bitcoin blockchain. The term cryptocurrency has become a global phenomenon and it is also gaining popularity in India, where India ranks second in terms of cryptocurrency adoption according to Global Crypto Adoption Index 2021. In addition, there are about 15 to 20 million crypto investors in India with a total holdings of about Rs 400 crore ($ 5.37 billion). Now there must be some kind of positivity behind the incredible numbers. Let’s look at some of the key benefits of investing in cryptocurrency:

Transaction costs

The transaction costs of cryptocurrencies are far too low compared to various financial services. Transactions with cryptocurrencies are cheaper. In fact, a bank transfer in banks can cost significantly more than the price of the cryptocurrency transaction. However, this comes with a caveat that blockchain demand may increase transaction costs.

Transparency and security

Cryptocurrencies are primarily based on blockchain encryption and security and the distributed network of computers that verify transactions, which improves security. So unless and until someone has access to your cryptocurrency’s private key, they will not be able to sign transactions or access money. The majority of hacking incidents involve hacking of exchanges and also due to individual errors.

Easy transactions

One of the main advantages of cryptocurrency is easy transactions, which has also led to high demand. By simply using a simple smartphone app, hardware wallet or exchange wallet, anyone can send and receive a variety of cryptocurrencies. In fact, some types of cryptocurrencies including Bitcoin, Litecoin and Ethereum can be purchased with cash in a Bitcoin ATM.

Risk diversification / Portfolio diversification

Diversification is a must when it comes to creating assets, and cryptocurrency is one such asset class that offers investors diversification from traditional financial assets. However, investing in cryptocurrency also comes with risks given the volatility seen in this asset class. We have seen that investors with an ideal combination of these two asset classes should generate regular returns.

Increase in acceptance

Over the last few years, there has been an increase in cryptocurrencies as well as the level of investor acceptance. The underlying utility / value of these cryptocurrencies is one of the most important investment criteria. For example, NFTs or non-fungible tokens have recently gained popularity and are secured by the Ethereum network. These utilities entice investors and act as a buy proposal. However, not all cryptocurrencies are alike as some cryptocurrencies offer no utility and only piggyback on the culture of internet memes.

Conclusion

There are also additional benefits / advantages of cryptocurrencies. There are also obvious and notable drawbacks – primarily volatility, and therefore investors should do their own careful research before investing. If you invest wisely, you can definitely build a very strong portfolio.

(Siddharth Jaiswal is the founder of Sportzchain, a blockchain-based platform for tab engagement)

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Published on: Sunday, 08 May 2022, 07:00 IST

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