For something that's not backed by tangible securities or real assets, cryptocurrency's appreciation of value during the previous years is nothing short of meteoric.
Yes, there had been head-spinning, stomach-churning price swings in the past.
But each time, cryptocurrencies like Bitcoin have emerged stronger and more attractive than ever.
Introduction to Cryptocurrency
A person (or a group) known under the name Satoshi Nakamoto created Bitcoin, the first cryptocurrency, in 2009.
Bitcoin was almost worthless when it first came out. But as people and businesses adopted this 'novelty' currency, its value soared.
Other cryptocurrencies have cropped up since then. In 2021, there is more than five thousand alternative cryptocurrenies, or altcoins.
Besides Bitcoin, other popular cryptocurrencies are Ethereum, Litecoin, Cardano, and others. Bitcoin, however, remains the king of cryptocurrencies.
Digital currencies are virtually impossible to counterfeit; their protocol prevents anyone from 'double spending' a single unit of cryptocurrency.
As of February 2021, one Bitcoin is worth more than USD$50,000.
There is no need to buy a whole Bitcoin. It is possible to buy any tiny chunk of Bitcoin as well.
Benefits of Cryptocurrency
As its value keeps on increasing, more and more people are turning into cryptocurrency trading; a virtual gold rush, you might say. And why not? Trading for this encrypted money has made a lot of people rich.
Besides, more financial institutions and corporations are beginning to accept Nakamoto-san's creation.
Let's look at a few benefits of cryptocurrencies:
1/ Easy Transactions
Traditional business transactions often involve a lot of middlemen—brokers, lawyers, agents—which can add not only unnecessary complications, but also all sorts of fees and paperwork.
A cryptocurrency trading, however, is a one-on-one affair, especially if the trade occurs on a decentralized exchange. The middlemen are eliminated, which means no paperwork and not owing commissions to various people.
Crypto trading is more straightforward and can be verified easily. Transactions can be seen, but not necessarily your personal information.
There are also hundreds of cryptocurrency trading exchanges. You can choose which among the best cryptocurrency exchanges suit you.
2/ Confidential Transactions
Transactions can be checked and verified by anyone, but the identity of the traders are hidden.
Personal identities are hardcoded and hidden from the public. These transactions are recorded in a sort of public digital ledger called the blockchain.
Because of the technology involved in the blockchain, no central authority manages the transactions and is solely between the buyer and the seller.
3/ Trading Availability
Another effect of crypto exchanges not being government-controlled is that it's open 24 hours a day. You can trade with anybody anytime.
You'll have a chance to arrange your schedule and trade whenever it's convenient for you.
4/ Lower Transaction Fees
Trading fees in cryptocurrency exchanges are pretty low.
External fees would be charged for a third-party service that manages your crypto wallet. But the cost doesn't come close to the transaction fees charged by banks or credit card companies, or for fees charged for transferring funds or writing checks.
Bitcoin miners responsible for verifying transactions generate the cryptocurrency, which is where their compensation comes from.
5/ Volatility
Many people might see the volatility of cryptocurrency, particularly Bitcoin, as a disadvantage.
Many, but not all; some traders think Bitcoin's volatility is what makes trading in cryptocurrency exciting.
Since 2010, there were around 47 instances where Bitcoin's prices have swung by at least 20%, which is enough to scare off investors new to cryptocurrencies.
However, Bitcoin's prices have increased by more than 800,000% in the last ten or so years.
Other cryptocurrencies have been stabler compared to Bitcoin, but it won't be long before speculators will turn their attention to these digital currencies.
Some traders look at volatility and they see opportunities. But these investors are, by and large, crypto-savvy; so, before you join them, you should do your homework first and develop your strategy.
- In a bull market, if prices go down, it will likely rebound and you could make a tidy profit—provided you remain steadfast and don't sell at the slightest breeze.
- In a bear market, the situation is completely different.
Conclusion
Cryptocurrency hasn't yet reached universal acceptance as legal tender.
However, banks and major corporations are warming up to it, despite its reputation for volatility. But despite the volatility of digital money, the benefits make up for its perceived risks. Savvy investors recognize cryptocurrencies as an exciting investment, which will likely be profitable in the long run.