Cryptocurrency, like any other investment, comes with risks and potential rewards. Cryptocurrency has experienced extreme price volatility in the past, and its value can fluctuate rapidly due to various factors, such as changes in government regulations, market sentiment, and technological advancements.
Before investing in cryptocurrency, it is important to do your own research, understand the risks involved, and consider your financial goals and circumstances. You should also ensure that you have a clear understanding of how cryptocurrency works, the technology behind it, and the market conditions that can impact its value.
It is also important to be cautious of scams and frauds in the cryptocurrency space. Many investors have lost significant amounts of money due to fraudulent schemes and Ponzi schemes. Therefore, it is crucial to be careful and only invest in reputable and legitimate cryptocurrency projects and platforms.
In summary, investing in cryptocurrency can potentially offer significant returns, but it also comes with risks. Therefore, you should carefully consider your financial goals, risk tolerance, and conduct thorough research before making any investment decisions.
There are several objections to using cryptocurrency that people often raise, including:
- There is nothing backing cryptocurrency. It’s just pretend money out of thin air.
- This claim is actually untrue. As with precious metals, the creation of cryptocurrency requires applying energy and technology. This process is so conceptually close to that of precious metals, that the machines that create crypto coins are called “miners.” So cryptocurrencies are based on what they call “proof of work.”
- Government fiat currencies on the other hand are created by debt. They are backed by the related government’s ability to force its citizens to pay the debt they created though tax collection.
- Volatility: Cryptocurrencies are known for their price volatility, and their value can fluctuate significantly over short periods of time. This makes them a risky investment and a poor choice for those who want a stable store of value.
- Proponents of cryptocurrency often argue that volatility is a short-term issue and that the long-term potential of cryptocurrency outweighs the risks associated with price volatility. Here are some common arguments made by cryptocurrency proponents in response to the idea that cryptocurrencies are too volatile:
- Emerging technology: Cryptocurrencies are a relatively new technology that is still in the early stages of development. As the technology matures, proponents argue that volatility will decrease as the market becomes more stable.
- Market supply and demand: Cryptocurrencies are subject to the laws of supply and demand, which can create price volatility. However, proponents argue that as the market for cryptocurrencies grows and demand increases, volatility will decrease.
- Diversification: Proponents of cryptocurrency argue that adding cryptocurrency to a diversified investment portfolio can reduce overall portfolio volatility. This is because cryptocurrencies are not directly correlated with other traditional asset classes, such as stocks and bonds.
- Potential for high returns: Cryptocurrencies have the potential for high returns, which proponents argue can outweigh the risks associated with volatility. Proponents often point to the historical price increases of cryptocurrencies like Bitcoin as evidence of their potential.
- Use cases: Proponents argue that the real-world use cases for cryptocurrencies, such as cross-border payments and decentralized finance, will drive demand and reduce volatility over time.
- Volatility is not in the fundamental nature of cryptocurrencies. Instead, volatility in the crypto market arises from the environment around cryptocurrencies. Because cryptos are viewed as a hedge against the world banking system, fluctuations occur in part from the variance of banking system confidence world wide.
- Security concerns: There have been instances of cryptocurrency exchanges being hacked and investors losing their funds. Also, cryptocurrencies are often stored in digital wallets, which can be vulnerable to cyber attacks and hacking attempts.
- Although exchanges have been hacked, an easy way to prevent your own loss is to keep your coins in your own crypto wallet. Having currency on an exchange is similar to having your government issued currency at a stock broker. Having your currency in your digital wallet is like having it in your back pocket. It’s much harder for somebody to hack into your personal wallet, and it usually involves somehow tricking you into giving away your seed words or password.
- Lack of regulation: The cryptocurrency market is largely unregulated, which means there are fewer protections for investors compared to traditional investments.
- As with all investments, buying crypto currency involves risk, including the risk of being fooled into buying what some call the “latest shitcoin.” If you plan on buying into coins that are not well known, make sure you do plenty of research into the merits of that particular coin, as well as the likelihood of many people recognizing those merits in the future.
- Regulators in banking and other financial industries have had debatable success in protecting consumers.
- Limited acceptance: Cryptocurrencies are not widely accepted as a form of payment, which means that they cannot be used for all transactions. This limits their usefulness in day-to-day transactions.
- This is actually changing substantially. According to an HSB survey in 2020, more than a third of small businesses accept cryptocurrency payments.
- You can do everything from buying fast food to booking airline tickets with cryptocurrency.
- Here is a long list of things you can buy with Bitcoin.
- Technical complexity: Cryptocurrencies are built on complex, decentralized systems that can be difficult for non-technical users to understand and use. This can create a barrier to entry for some investors.
- Cryptocurrency ownership has strong parallels to online banking.
- Your cryptocurrency loving friend will likely gladly help you get started.
- Environmental concerns: Some cryptocurrencies, like Bitcoin, require a significant amount of energy to mine, which can have a negative impact on the environment.
- In reality, Bitcoin energy consumption is very small compared to that of the banking system or the energy investment in gold.
There are several potential benefits of buying cryptocurrency, including:
- Decentralization: Cryptocurrencies are decentralized, which means they are not controlled by any central authority, such as a government or bank. This gives users greater control over their money and reduces the risk of government intervention or manipulation.
- Privacy: Transactions made with cryptocurrencies are often more private than those made with traditional payment methods, as they do not require personal information to be shared.
- Beware that most cryptocurrencies, like Bitcoin, are not private. The distributed ledger is there for all to see. You’re accounts (addresses) may be only represented by a relatively anonymous number, but because exchanges that trade with government fiat currency associate you with those addresses.
- There are some coins that do offer full privacy, such as Monero (XMR), Pirate Chain (ARRR), and Dero (DERO).
- Potential for high returns: Cryptocurrencies have the potential for high returns, as their value can increase significantly over short periods of time. This has led to some investors making significant profits from cryptocurrency investments.
- This is balanced by high volatility and the associated risk.
- Accessibility: Cryptocurrencies can be bought and sold on many online exchanges, making them more accessible than traditional investments, which may require a broker or other intermediary.
- Recently creating an account at an exchange that will enable you to buy cryptocurrencies with government fiat currency is comparable to opening a stock brokerage account.
- Security: Cryptocurrencies use advanced cryptography and are stored in digital wallets, which can be more secure than traditional bank accounts. However, it is important to note that the security of cryptocurrencies is not foolproof, and investors must take appropriate measures to protect their investments.
- When you have a deposit at a bank with government fiat currency, that currency actually belongs to the bank, and you are a creditor of the bank. Unfortunately depositors are the lowest priority creditors, and the last in line to get what they are owed in the case of a bankruptcy.
- Globalization: Cryptocurrencies are borderless and can be used to make transactions across borders without the need for currency exchange or other intermediaries.
- Potential for innovation: Cryptocurrencies are built on blockchain technology, which has the potential to revolutionize industries beyond just finance. This could lead to the development of new applications and use cases for cryptocurrencies in the future.
- Already, so many innovations have happened in the space of cryptocurrencies.
- Ethereum has given people the ability to execute escrow-like contracts (called smart contracts) without the necessity of a third trusted party.
- Dero has given the ability to do so with complete privacy.
- Some currencies have attributes of stock shares. Some are tethered to government fiat.
- Crypto currency is anti-war compared to fiat currency. Government fiat currency can be expanded as needed to fund wars of aggression. If wars had to be paid by direct taxation, they would be far too costly for anything except strictly defensive wars.
The Teamwork of Ethereum
This would not be a proper Venture Up blog without highlighting at least one great team related to cryptocurrency. Although Bitcoin was developed by an anonymous individual or team, Ethereum is considered the original and most used cryptocurrency that has smart contract capability.
Ethereum was created by a team of developers led by Vitalik Buterin, who was only 19 years old at the time of Ethereum’s initial release in 2015. However, Ethereum’s development has been a community effort, and many other individuals and organizations have contributed to its growth and success.
Some of the other major contributors to Ethereum include:
- Gavin Wood: Gavin Wood is one of the co-founders of Ethereum and was instrumental in developing the original Ethereum blockchain. He also created the Solidity programming language, which is used to write smart contracts for Ethereum.
- Joseph Lubin: Joseph Lubin is a co-founder of Ethereum and the founder of ConsenSys, which is one of the largest and most influential blockchain development companies in the world. ConsenSys has been involved in the development of numerous Ethereum-based projects and applications.
- Vlad Zamfir: Vlad Zamfir is a researcher and developer who has contributed extensively to the development of Ethereum. He is best known for his work on the Casper consensus algorithm, which is designed to improve the security and scalability of the Ethereum blockchain.
- Aya Miyaguchi: Aya Miyaguchi is the executive director of the Ethereum Foundation, which is a non-profit organization that supports the development of the Ethereum platform. She has played a key role in promoting Ethereum and supporting its growth and development.
- Ethereum Community: Ethereum has a vibrant and active community of developers, enthusiasts, and users who have contributed to its development in numerous ways. The community has developed a wide range of tools, applications, and resources to support the growth and adoption of Ethereum.