More than 46 million Americans plan to invest in cryptocurrency in the near future. That’s in addition to the 145 million Americans who have already done so.
Despite the rapid rise in the popularity of cryptocurrency, it’s still a relatively new and unknown financial entity. Stories of the big wins of investing in crypto are often followed by stories of sudden drops, and investors losing hundreds, thousands, or even millions of dollars.
As with any type of investment, it’s important to make sure that you’ve educated yourself on the risks before you get started. Even Analyzing the pros and cons of cryptocurrency is a great way to get started. Weighing these pros and cons can help you to make a more informed decision about your investments.
Cryptocurrency might be a digital form of currency. But while the currency might be digital, the risks are very much real. Investors have the potential to gain—or lose—their very real financial investments.
If you’re thinking about investing in crypto, keep reading. We’re breaking down what you need to know about this new form of digital currency and the pros and cons of investing.
Crypto Guide: What You Need to Know
Cryptocurrency is a form of digital cash. It’s a peer-to-peer financial system, meaning that investors can buy, send, and receive crypto without needing to work through a bank or other financial institution. There’s no physical representation of crypto; instead, it exists entirely online.
There’s no single type of cryptocurrency. Much like the many different types of money produced by countries around the world, there are also many different types of cryptocurrency. There are more than 12,000 cryptocurrencies in existence today.
The very first cryptocurrency was Bitcoin. This new form of currency was created in 2009, following the Great Recession of the early 2000s. Some other common types of cryptocurrency include Ethereum, Litecoin, and Ripple.
Cryptocurrency is created through a process called “mining.” To mine for crypto, computers are set up to solve mathematical problems. After solving these complicated problems, coins are generated.
After these currencies are mined, they are then sold to the public through brokers. These crypto brokers operate in much the same way as regular stock brokers. In exchange for a fee or percentage of your investments, they help connect buyers to crypto sources, and help crypto miners to sell their currency.
When you purchase cryptocurrency, you store it in a digital wallet and have a private key that allows you to access it. Each time crypto is bought, sold, or exchanged, the transaction is recorded in a ledger. Unlike a bank or the stock market, every single crypto transaction is public.
Also Read: The Guide That Makes It Simple to Choose Cryptocurrency Investments
Cashing Out on Crypto
After investing in crypto, your digital money is stored in your wallet until you decide to use it.
Some retailers are beginning to accept certain forms of cryptocurrency for transactions. But if you want to turn your crypto into cash, you’ll have a few options.
One option is to exchange your cryptocurrency for cash online. You can use an online exchange to “sell” your crypto. From there, you can transfer the cash you get to your bank account.
Another option is to use a broker. If you’re already using a broker to buy crypto, your broker can also help you to cash out. For instance, the investing app Robinhood is a crypto broker. Users can purchase cryptocurrency using cash that they’ve deposited into their accounts. They can also sell the crypto they’ve purchased in the app for cash.
Your third option is to sell your crypto to another user for cash online. Unlike the stock market, cryptocurrency is an open market, with transparent transactions. For this reason, investors can buy or sell to other individuals without needing a broker or bank.
Perhaps the easiest way to turn crypto into cash is with a Bitcoin ATM. Much like a regular ATM, these machines provide instant access to your crypto. But since you can’t cash out these digital assets, you’ll instead be exchanging them for cash. This page can help you find Bitcoin ATM locations near you.
Crypto Pros
There’s a big reason why cryptocurrency has grown so quickly; it promises some big opportunities for growth. Let’s take a closer look at some of the crypto pros investors should know.
High Risk Equals High Potential for Rewards
One of the biggest advantages of cryptocurrency is that it offers a high potential for reward.
Cryptocurrencies are often touted as being high-risk. But part of this is due to their tendency to experience sudden spikes in value, followed by just as sudden drops. Unlike stock markets, which can be impacted by a variety of outside factors, the value of cryptocurrency is largely tied to supply and demand. “Miners” mine for crypto and the availability of this crypto then impacts the price.
If you’re able to learn the world of cryptocurrency and can figure out how to get in at the right time, you have the potential to enjoy some very big returns.
Crypto Never Sleeps
When you want to make a transaction with your bank or invest in the stock market, you’re tied to their schedule. The U.S. stock markets, including Nasdaq Stock Market (Nasdaq) and the New York Stock Exchange (NYSE), operate Monday through Friday from 9:30 a.m. to 4:00 p.m. Most banks operate under similar hours, though they may be open on Saturdays as well.
But the cryptocurrency market never sleeps. You can buy and trade crypto 24 hours a day, 7 days a week, all year round.
Cryptocurrency Can Help Beat or Avoid Inflation
While crypto might have exploded in popularity in the U.S., it isn’t restricted to the United States, or even to North America. Cryptocurrency is a global phenomenon. It isn’t connected to a single type of currency or backed by a single economy.
In addition to not being connected to a single market, the number of any one type of crypto coin is capped. These two factors mean that cryptocurrency is largely protected from the impacts of inflation.
Crypto Doesn’t Rely on a Bank
There have been multiple times throughout U.S. history when failing banks have led to the devastation of countless families’ and individuals’ life savings. The Great Depression is perhaps the most famous.
By the end of the 1930s, more than 9,000 banks had failed, taking with them massive amounts of investments and savings accounts. While the Federal Deposit Insurance Corporation (FDIC), created in 1933, now helps to protect bank deposits, the housing crisis and subsequent recession that occurred in 2008 caused many people to doubt the trustworthiness of banks.
Crypto doesn’t rely on banks. It isn’t backed by any banks, in the U.S. or elsewhere. Instead, it’s backed by the blockchain. The blockchain and individual cryptocurrencies can be viewed by anyone, from anywhere, at any time. This helps to make it a more transparent, fair financial system as compared to traditional banks.
Crypto Cons
Cryptocurrency has been a hot topic for a few years now, with millions of people jumping on board. But the rapid rise of cryptocurrency has also revealed some drawbacks. Here are a few crypto cons that investors need to be aware of.
Crypto Carries Big Risks
Perhaps the biggest con of cryptocurrency is that while it can offer big rewards, those rewards come with massive risks. Crypto is extremely volatile. Just as it can spike to big highs, it can also crash quickly, and without warning.
The crypto market is very small, especially compared to stock markets. As a result, it’s more vulnerable to changes as a result of price fluctuations. This is largely the reason for the drastic drops.
In addition, crypto isn’t backed by industries and the financial market like traditional stocks are. This makes it much more difficult for investors to analyze trends or to use algorithms to make decisions about their investments. For new investors, choosing when to buy and sell crypto can very much feel like guesswork.
Even experienced investors may struggle to know when a sudden drop is likely.
Investors looking to make safe, reliable investments and see steady returns should look elsewhere. Even with experience in the crypto market, you’ll constantly face the risk of a sudden drop.
Learning Cryptocurrency Takes Time
Another disadvantage of crypto is that it takes time to learn. The in’s and out’s of blockchain, how cryptocurrency works, and even what it takes a lot of time to learn. Even if you have experience in the stock market or other financial topics, you’ll need to spend a lot of time working to understand what you’re buying and how to do so.
If you want to get started in crypto, you’ll need to plan to invest a lot of time and effort into learning about it. There are a variety of resources available online that can help, but you’ll still need to put in the time before you dive into investing.
Security Risks are a Serious Hazard
The blockchain is largely secure. It is decentralized and stored across multiple computers. This means that even the best hackers would be unable to access the entire chain at once. Information within the blockchains is well-protected.
But while the blockchain may be secure, your investments may not be. To start, each investor has something called a private key. This is what allows you to access your crypto coins.
If you lose this key, or if hackers gain access to it, your crypto could be lost forever. With no government bodies backing cryptocurrency, you’ll have no protection against this.
Experienced crypto investors know how important it is to protect their investments and their private key. But new investors may not be quite so vigilant, leaving their money and investments at risk.
Long-Term Crypto Success is Still in Question
Cryptocurrency is still a relatively new thing. While it’s widely recognized around the world, it’s still less than a few decades old.
We don’t yet know what cryptocurrency will look like in the future, or how it will hold up.
Already, experts are raising concerns about whether or not it is scalable. Some believe that the blockchain has already reached the limits of its capabilities. This means slower transactions, which can be not only frustrating for investors but could also cost you money if you’re trying to sell before a drop.
With no idea of what to expect from crypto in the future, investors should be wary of tying up their investments in a volatile, uncertain market.
Weighing the Crypto Pros and Cons
If you’re thinking about getting started investing in cryptocurrency, it’s important to first analyze the pros and cons.
Cryptocurrency can offer some big returns, as well as a more transparent and stable financial market. However, many new investors make the mistake of thinking that their investments will be much more profitable than they wind up being.
Nearly 50 percent of Americans who invested in crypto said that it did worse than they had expected. This doesn’t necessarily mean that their investments failed. What it does mean is that, as with any type of investment, educating yourself on what to expect and your potential losses is a must.
But with a little education and some smart decisions, investing in cryptocurrency can be a great addition to your portfolio of other investments.
If you’re ready to learn more about making smart investments, we can help. Check out the “Business & Finance” section of our site to learn more about trading in the stock market, the latest financial trends, and more.
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