What Is The Pros & Cons Of Cryptocurrency

What is cryptocurrency?

Cryptocurrency is a digital currency that has the same purpose as physical currency, which is to act as a medium of exchange. So, people can use cryptocurrency to pay for goods and services, but it's more commonly known as a speculative type of investment asset.

Also known as "crypto," cryptocurrency uses blockchain technology to record transactions in a ledger system. The most important aspect of this technology is that it can be viewed publicly but it can't be changed or controlled by any single entity, making cryptocurrency secure for online transactions and nearly impossible to counterfeit.

How Many Cryptocurrencies Are There?

There are thousands of cryptocurrencies that are publicly traded today, as others continue to come on the market. Many of these cryptos are not well known and don't have much trading volume. Examples of popular, more widely traded cryptocurrencies include Bitcoin (BTC-USD), Ethereum (ETH-USD), Litecoin (LTC-USD), and Bitcoin Cash (BCH-USD).

Is Cryptocurrency Legal?

Cryptocurrency is legal in the U.S., as well as most developed market countries, such as the U.K., Germany, and Japan. Some countries have either banned it or restricted its use. For example, China has heavily restricted Bitcoin use but has not made it illegal to hold bitcoins.

How Does a Cryptocurrency Gain Value?

As of July 2021, the value of all cryptocurrencies exceeded $1 trillion. Like other currencies, the value of cryptocurrency is primarily driven by the supply of the currency and its demand in the market. However, unlike traditional currencies, cryptocurrency is not issued by a central bank or backed by a government. For this reason, monetary policy, inflation, and economic growth do not influence the value of cryptocurrency.

Pros and Cons of Cryptocurrency

There's no shortage of financial media coverage on the rapid growth and popularity of cryptocurrency. But like other types of financial assets, there are some significant risks and disadvantages that come along with the growth potential and benefits.

Pros of Cryptocurrency:

• Anonymity: Cryptocurrency transactions are completely anonymous, which is a benefit for users wanting privacy.
• Transparency: Although transactions are anonymous, the data is recorded on an open ledger using blockchain technology. This means that data is transparent and publicly available at any time.
• Decentralization: Since cryptocurrency is not issued by a central bank or backed by a federal government, there is no interference from government or influence from monetary policy.
• Potential for quick gain: The popular cryptocurrency, Bitcoin, has had many short periods of significant gains, such as the first four months of 2021, where it more than doubled in price before falling again. Some of the top daily gains in crypto have surpassed 200%.
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• Cons of Cryptocurrency:

• Price volatility: While quick gains are a big attraction to crypto for many interested investors, there is also potential for fast and extreme declines in value. A recent example is Bitcoin's 50% price drop in just two months from April to June 2021.
• Excessive cost to produce: Many cryptocurrency types require vast sums of electricity and other resources to mine. For example, the energy required to mine Bitcoin represents the majority of costs associated with it.
• Regulatory restrictions: While cryptocurrencies are generally legal in many developed countries, the currency is not formally regulated by central governments. The risk of investing in cryptocurrency will be elevated until federal governments adopt and regulate it in the same way as fiat currencies, such as the U.S. dollar.
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• Risk of losing coins: Many cryptocurrencies like Bitcoin require a private key to access the currency tokens that are stored in a digital "wallet." If you lose your key, or if your computer hardware fails, you lose your tokens, which are not recoverable in any other way.
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• Where to Buy and Trade Cryptocurrency:

• Although there are thousands of cryptocurrencies in existence today, there are only a handful of trading platforms that offer trading. Crypto trading platform examples include Robinhood and Sofi Active Investing. Most platforms offer investors the opportunity to buy Bitcoin and other popular cryptocurrencies. Another option for buying cryptocurrency is Coinbase (COIN), which is a popular exchange where users can buy, sell, transfer, and store digital currency.

  Here are the basic steps to buy and trade cryptocurrency:

  1. 1)Choose a trading platform or exchange.
  2. 2)Create an exchange "wallet" to store your cryptocurrency.
  3. 3)Add a payment method, such as a debit card, to fund your account.
  4. 4)Buy your chosen cryptocurrency.