Although cryptocurrencies make borderless transactions much more efficient and trustworthy, they come with a few flaws. Part 1 of this series of articles discussed the technology behind the cryptocurrency and Part 2 explored Bitcoin. Both parts have extensively looked into the way in which blockchain makes cryptocurrencies efficient. This third portion of the cryptocurrency series will discuss some of the disadvantages of cryptocurrency along with investment and the future of cryptocurrencies in general.
Disadvantages associated with cryptocurrencies:
It is highly volatile. Cryptocurrencies being relatively new to the market (10 years old), lacking in central regulation, and limited in supply makes them intrinsically unstable.
Black market. Cryptocurrencies are not backed by any government, making them susceptible to be used for unlawful activities, such as money laundering or the black market. For instance, In 2013, the FBI shut down Silkroad’s website, which was an online black market best known for selling drugs by accepting bitcoins.
Not entirely borderless: Few countries are equipped to regulate cryptocurrencies to prevent illegal activities. Such countries have banned cryptocurrencies or have imposed increasingly tight restrictions on them.
No refund policy. If there is a dispute between parties – or if the transaction was mistakenly made to the wrong address – the sender cannot retrieve their money.
Keeping both advantages and disadvantages in mind, cryptocurrency investment is worth examining. There are two ways a user can invest in cryptocurrency. The first is through business. Here, users are interested in cryptocurrency to perform business transactions because of their properties. The second is traders, who basically buy crypto coins when the market value is low and sell them when it is high. Regardless of the type of user, a thorough understanding of the market and properties of different cryptocurrencies is necessary. Here are a few popular cryptocurrencies.
Bitcoin: The very first, most popular, and largest cryptocurrency so far. Currently, more than 18.6 million (out of 21 million) Bitcoins are in circulation. Bitcoin was discussed extensively in Part 2 of this series.
Litecoin: Created by a former employee of Google, Charlie Lee, to improve transactions with lower fees than Bitcoin.
Eethirium: Founded by Vitalik Buterin, this is the second-largest cryptocurrency. Eethirium is a network platform on which users can create a decentralized program so that there is no need for a central authority. The currency used to incentivize the network is Ether. Etherium connects people without the need to pay for third-party. For instance, a person can directly book a cab, removing third-party apps such as Uber. The value lies in net worth and future possibilities.
Ripple: Unlike most cryptocurrencies whose main focus is on serving the individual, Ripple aims to serve banks and corporations, helping them to move large amounts of money with lower transaction costs. Ripple coins are called XRP.
Dogecoin: Dogecoin is a prime example of how cryptocurrencies can be highly volatile. Doge coins started off as a parody for cryptocurrencies, using the face of the shiba inu dog from the “Doge” meme as its logo. What started as a joke took off due to its Internet popularity and Elon musk’s tweets, becoming fifth largest cryptocurrency.
There are currently thousands of types of cryptocurrencies in the market, each claiming to be better than the others in an attempt to lead the market. So – where to start? For beginners, Dogecoin seems to a good starting point to understand or gain experience in cryptocurrencies. It has a smaller price to it (1 dogecoin = approximately 30 cents), making it far less overwhelming than other cryptocurrencies.
The main question is this: what is the future of cryptocurrencies? There are a lot of possibilities for cryptocurrencies to flourish in wide sectors. However, being complex in nature is a deterrent for most people, except for those who are technologically adept. If all governments proceed to recognize and effectively regulate cryptocurrencies while educating people on the technology, cryptocurrencies could become mainstream financial systems.
When investing using these new forms of exchange, thorough knowledge of cryptocurrencies and understanding of the regulations in one’s country are needed. This three-part series only serves as an introduction to cryptocurrency in general, and further study is required for any person looking for investment opportunities.