With the massive rise in digitization, Cryptocurrencies have become a household name of late. Exchanges are running the show in the industry by offering a variety of digital assets at an affordable price. Important activities such as verification of customer’s identity, trading, and executing transactions are all happening effectively through online platforms.
Let us understand more about the potential that lies in this game-changing virtual asset.
What does cryptocurrency connote?
Many competitors issue their customized currencies in the form of tokens. These tokens can be exchanged for the leading cryptocurrencies or fiat currencies in the market. It can also be utilized to buy goods or services wherever merchants accept it as a mode of payment. The technology that powers cryptocurrency is nothing but the blockchain. It is a decentralized technology that is shared across many interconnected networks. The records containing the history of trades and transactions are made uniform and cannot be altered by anyone at any cost. This ensures that there is no compromise in the security of the user’s data and funds.
Figuring out the number of cryptocurrencies and their market value
According to CoinMarketCap, a website owned by Binance, that closely watches the crypto space, there are over 2200 unique cryptocurrencies traded publicly in different exchanges. Their market value is hitting the roof through the introduction of innovative methods of fund-raising, such as the ICO (Initial Coin Offering). The total value of all cryptocurrencies available in the industry was $246 billion. Bitcoin, the oldest cryptocurrency launched more than a decade ago, recently surpassed the $200 billion mark.
Investigating the reasons behind the burgeoning popularity of cryptocurrencies
- Investors who strongly believe in the power of digital currencies believe that Bitcoin has the potential to become the currency for the future. Since it keeps fluctuating frequently, there is a higher demand to acquire it immediately before it reaches new heights.
- Since there is no intervention from third parties such as Central banks and other financial watchdogs, Bitcoin offers a better investment alternative due to its higher value. Traditional banknotes and fiat currency are losing their worth due to inflation and other internal economic risks.
- With high-level security measures such as two-factor authentication and end-to-end encryption, Bitcoin pips the traditional modes of payment, such as debit cards, credit cards, and bank transfers. Decentralized processing of transactions makes chances of hacking and data breach impossible.
- It is largely being used by speculators who analyze the market movements closely. Since cryptocurrencies offer confidentiality and promise of high returns, they are being preferred more than traditional fiat currencies.
Is Cryptocurrency a viable investment alternative
- Since cryptocurrencies are being closely watched by governments and regulators worldwide, its cash flow is quite negligible. Healthy profits can be earned only if an investor pays more for purchasing a digital asset than his closest rival.
- Its constant tendencies of fluctuations such as hitting record-highs and achieving new-lows can lead to lesser demand from investors who prefer stability. Many traders find it difficult to determine the fair value of a digital asset.
- With too many changes in its values from year to year, people may stop spending Bitcoins, hoping that there would be a huge rise in value after a few months. This can affect its viability as a currency.
The process to follow while acquiring cryptocurrency
- Very few cryptocurrencies operating in the market can be bought using fiat currency such as the US Dollar or Fiat.
- Relying on the anonymity provided, many exchanges are permitting cryptocurrencies to be purchased using Bitcoin or any other leading cryptocurrency.
- Investors must register themselves with a wallet service provider who offers a mix of hot and cold wallets to store the tokens or coins.
- Fees will have to be incurred for making deposits, processing withdrawals, and executing transactions.
- Very few dealers of cryptocurrency offer free trading services on their platforms.
- Cryptocurrencies can be bought and sold in Centralized, Decentralized as well as Peer-to-Peer exchanges.
Recognizing the legality of Cryptocurrencies
In countries such as the United States of America, cryptocurrency exchanges are absolutely legal after they have met all guidelines laid down by the SEC (Securities and Exchange Commission). Conservative countries such as China have not banned Bitcoin but restricted exchange trading operations. India’s Supreme Court has recently removed the ban on cryptocurrency exchanges that were earlier put in place by the Reserve Bank of India.
Other nations such as Singapore, Switzerland, and Malta are very friendly towards cryptocurrency exchanges. Since the legal status of cryptocurrencies varies from one country to another, there is a need for a common international framework to regulate crypto exchanges. Users must exercise caution before investing in cryptocurrencies due to the increasing number of frauds and scams.
How can investors safeguard themselves from frauds?
- Figure out the reputation of the team members involved in launching a cryptocurrency project. Verify their background and experience.
- Have a look at the investors who are participating in getting a stake in the cryptocurrency.
- Decide if you want to get a major ownership stake that has voting rights and higher earning potential. The other option would be to purchase tokens that can be used to purchase commodities in the market.
- Opt for a well-designed product made by a company that has slogged for a few years in the market. Investing in new products made by inexperienced companies is risky.
- Go through the whitepaper offered by the company. Study the distribution strategy, legal implications, benefits offered, and other terms and conditions.
At the end of the day, invest in Cryptocurrency development services based on your financial worth and risk appetite. Go through the above factors before taking your investment call.