Interested in Investing in Cryptocurrency? Here are some pros and cons

Cryptocurrency has been in the limelight since its inception in 2009 with the creation of the Bitcoin blockchain. The term cryptocurrency has become a global phenomenon and it is also gaining popularity in India, with India ranked second in terms of cryptocurrency adoption according to the Global Crypto Adoption Index 2021. Additionally, there are around 15 to 20 million crypto investors in India with a total holding of around 400 billion rupees ($5.37 billion). Now, there must be some kind of positives behind those incredible numbers. Let’s look at some of the main advantages 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 wire transfer at banks can cost significantly more than the cost of the cryptocurrency transaction. However, this comes with a caveat that demand on the blockchain can increase transaction cost.

Transparency and security

Cryptocurrencies are primarily 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 transactions or access funds. The majority of hacking incidents involve the hacking of exchanges and also due to individual errors.

Ease of transactions

One of the main advantages of cryptocurrency is ease of transaction, which has also led to high demand. By simply using a simple smartphone app, hardware wallet, or exchange wallet, anyone can send and receive a variety of cryptocurrencies. In fact, some types of cryptocurrencies including Bitcoin, Litecoin, and Ethereum can be purchased with 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 comes with risks given the volatility seen in this asset class. We have seen that investors with an ideal combination of these two asset classes should generate regular returns.

Increase in acceptance

Over the past few years, there has been an increase in cryptocurrencies as well as the level of investor acceptance. The underlying utility/value of these cryptocurrencies is one of the main investment criteria. For example, NFTs or non-fungible tokens have recently gained popularity and are secured by the Ethereum network. These utilities entice investors and act as a buy proposition. However, not all cryptocurrencies are the same, as some cryptos offer no utility and just piggyback on the culture of internet memes.

Conclusion

There are additional advantages/benefits of cryptocurrencies as well. There are also obvious and notable downsides – primarily volatility and therefore investors should do their own careful research before investing. If invested 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, May 8, 2022, 07:00 IST

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Interested in Investing in Cryptocurrency? Here are some pros and cons


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