Interested in investing in cryptocurrencies? 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 is also gaining popularity in India with India ranking second in terms of cryptocurrency adoption according to the Global Crypto Adoption Index 2021. In addition, there are about 15 to 20 million crypto investors in India with a total holding of about 400 billion rupees ($5.37 billion). There must be something positive behind those incredible numbers. Let’s take a 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. Cryptocurrency transactions are cheaper. In fact, a bank transfer can cost significantly more than the cost of the cryptocurrency transaction. However, this comes with a caveat that demand for the blockchain can increase transaction costs.

Transparency and security

Cryptocurrencies are mainly based on blockchain cryptography and security and the distributed network of computers verifying transactions, which improves security. So unless and until someone has access to your crypto wallet’s private key, they will not be able to sign any transactions or access funds. Most hacking incidents involve exchange hacking as well as individual errors.

ease of transactions

One of the main advantages of cryptocurrency is the ease of transaction, which has also led to a high demand. By simply using a simple smartphone app, hardware wallet, or exchange wallet, anyone can send and receive a variety of cryptocurrencies. Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can even be purchased for cash at a Bitcoin ATM.

Risk Diversification/Portfolio Diversification

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

Increase in acceptance

In recent years, there has been an increase in cryptocurrencies, as well as the level of investor adoption. The underlying utility/value of these cryptocurrencies is one of the most important investment criteria. For example, NFTs or non-fungible tokens have recently become popular and are secured by the Ethereum network. These utilities lure investors and act as a buying offer. However, not all cryptocurrencies are created equal, as some cryptos offer no utility and simply piggyback on the culture of internet memes.

Conclusion

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

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

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Published on: Sunday 8 May 2022, 07:00 IST

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