Sara Williams, journalist and crypto enthusiast, shares her insights into cryptocurrency trading explaining main advantages and disadvantages users may face during the process.
Cryptocurrencies have become a major topic in the last couple of years, mostly due to the incredible rise of Bitcoin. Let us remind you that Bitcoin reached the peak price of almost $20 thousand in late 2017, which caused a huge interest of investors, financial institutions, and individuals all over the globe.
However, the fact remains that people still don’t know too much about digital currencies. It’s a complex phenomenon that brings users a number of advantages but it also has a few downsides as well. In this article, we will show you the pros and cons of cryptocurrency trading.
Five Advantages of Cryptocurrency Trading
We begin with the most important benefits of cryptocurrency trading. Here are our top five reasons:
The first advantage of using cryptocurrencies is highly practical. Digital coins are decentralized and you don’t have to pay all those annoying taxes, fees, and transaction costs. If you want to learn more about the transaction cost differences between traditional banking and blockchain-based systems, we recommend you consult cryptocurrency trading experts.
- Faster Transactions
Traditional banks and other financial institutions keep you waiting for a whole day (at best) to complete the money transfer. On the other side, cryptocurrencies function much more efficiently, so you don’t have to wait for more than a few minutes.
- Lucrative Business Opportunities
Cryptocurrencies represent a low investment, high reward business opportunity because they have the potential to grow drastically in a relatively short period. For instance, alt-coin Aeron (ARN) experienced a 337.29% rise in just 24 hours in January 2018. In such circumstances, you can really earn a lot of money while avoiding overspending in cryptocurrency projects.
- No Inflation
We already mentioned that cryptocurrencies are decentralized, which means they are free from government influence or any other kind of state authority. In other words, governments and central banks cannot overproduce digital coins, cause inflation, and reduce the value of your online money. For example, there are 21 million Bitcoins and the number is never going to change.
Cryptocurrencies are based on the blockchain, a technology that builds immutable public ledgers. No one can change the history of transactions, so there can be no counterfeit attempts, frauds, or identity thefts. The best proof is a simple fact that Bitcoin has never been hacked. Besides that, you completely control your funds since there is no third-party provider to block your account for whatever reasons.
Five Disadvantages of Cryptocurrency Trading
Now that you’ve seen the biggest benefits of using cryptocurrencies, it is time to see the other side of the coin as well. Without further ado, here come the cons of trading digital coins:
- Not a Widespread Technology
Most people have heard of Bitcoin and other cryptocurrencies, but only a minor percentage of them have actually invested in digital currencies. A report shows that the size of the blockchain technology market is projected to grow to over $2 billion by 2021. This is by no means a small amount, but it’s almost nothing compared to the traditional financial market. In such circumstances, your options are limited and you won’t be able to cooperate with the vast majority of traditional companies.
- High Risk
On one side, cryptocurrencies give you the opportunity to earn a lot very quickly, but they also create a high-risk environment for investors. The price of Bitcoin and other coins can collapse within minutes. Therefore, you can also lose money in case you don’t plan investments carefully.
- Illegal Activities
Cryptocurrencies don’t guarantee full-time anonymity, but the technology can definitely help criminals engage in illegal activities much simpler. Central authorities are afraid that cybercriminals already use blockchain technologies for money laundering, terrorist funding, and similar activities that would otherwise be much more difficult to handle.
- Limited Scaling
The blockchain technology is able to process transactions almost instantly, but it doesn’t support more than a few transactions simultaneously. For instance, Bitcoin allows up to seven transactions per second, while Visa processes almost 25 thousand requests per second.
What does it mean? It means cryptocurrencies have a limited scaling possibility for the time being. It takes a much more powerful system to boost the regular commercial use of digital currencies, but it’s not likely to happen too soon.
- Increased Regulations
Governments cannot completely control cryptocurrencies, but they can certainly adopt new laws in an attempt to regulate the market. Some countries (Japan, Switzerland, Singapore) are already developing their own cryptocurrencies, while some are trying to ban it (Ecuador, Macedonia, Morocco). The market is prone to changes, so it’s impossible to predict the future of cryptocurrencies.
Cryptocurrency trading has become extremely popular in the last few years, but so many investors still don’t understand this concept in its entirety. The truth is that digital currencies offer users a wide range of benefits, but they also come with a few disadvantages.
If you are thinking about investing in this field, you need to hear both sides of the story. We made this article to show you five pros and cons of using cryptocurrencies. We hope it helps you figure out whether to engage in cryptocurrency trading, but feel free to leave a comment if you need additional information about this topic.
Sara Williams is an editor, journalist, writer from San Jose. She likes to read the world classics, traveling, to engage in yoga. Almost all spare time she spares to reading. Meet her on BestEssays and SuperiorPapers.