Cryptocurrencies are attracting the attention of investors and consumers alike. While some are quick to dismiss them as a fad that’ll fizzle out, others are excited about the potential of crypto as a new asset class. Some of the world’s biggest brands and businesses are already dabbling with it, creating products that leverage its technology or offering services in exchange for crypto.
But what is crypto actually good for? And what are the risks involved?
Unlike traditional currency, which is printed on paper and backed by a government or financial institution, cryptocurrency has no physical form. Instead, it’s stored digitally, often on a computer or mobile device in a “wallet.” This means that the owner has complete control over their assets without the need for middlemen or trusting an establishment like a bank.
This decentralized model makes crypto an attractive option for people who want to avoid fees charged by credit card companies or banks for processing transactions, or for those who wish to buy and sell items anonymously. Additionally, because it is encrypted, crypto cannot be easily counterfeited. Each crypto is paired with a public key and private key, which are linked to a wallet that allows users to send and receive coins. Public keys are publicly accessible, while private keys are kept secure.
One of the main concerns with investing in crypto is its price volatility. Crypto prices rise and fall rapidly, sometimes dramatically, and that can make it difficult to plan purchases when the value of a coin might fluctuate by 30% in one week. It also means that if you’re purchasing an item with crypto and the price drops between the time you purchase it and when the transaction is approved, you may not have sent enough money to pay for the item.
Another drawback to crypto is that it’s not regulated, which can mean you don’t have the same protections as with other investments. For example, if you’re not careful about the crypto exchange you use to store your investment, it could be hacked or shut down. In addition, there’s no guarantee that a business accepting crypto will be around to honor your payment or provide the goods and services you paid for.
Finally, because crypto is so volatile, it’s generally considered a high-risk investment and should only make up a small portion of your portfolio. A common rule of thumb is no more than 10%.
Despite the challenges, many experts are optimistic about the future of crypto and believe that it has the potential to disrupt traditional finance as we know it. It’s too early to tell how that will play out, but there are plenty of exciting possibilities on the horizon. From purchasing property in a virtual gaming world to buying and selling avatar clothing, there’s much to explore beyond Bitcoin. And that’s before even diving into some of the other innovations built on the Ethereum blockchain, like smart contracts, non-fungible tokens (NFTs) and decentralized applications (dApps). Then there’s stablecoins, which were created to counteract the volatility of other cryptocurrencies.