When everybody is talking about cryptocurrencies, you may think that it is a highly profitable investment. It is important to consider that there can be disadvantages of investment in cryptocurrencies. An alarming number of cryptocurrencies fail due to security issues, bad publicity, unclear progression, unethical behaviour or some other reasons. The cryptocurrency quickly loses its value.
Therefore, first of all, you need to be aware of the pros and cons of cryptocurrency. Once you have made your mind to invest in cryptocurrencies, learn to analyze cryptocurrencies. Fundamental analysis and technical analysis are two methods for the analysis of cryptocurrencies, stocks and other assets.
The Present Situation Of Cryptocurrencies
Bitcoin, Litecoin, Ether and many other cryptocurrencies are gaining popularity these days. The value and trust associated with a currency play an important role when it comes to exchanging that currency with some other currency. The dollar is involved in most of the international trades because traders trust this currency.
Similarly, when it comes to choosing a cryptocurrency for trading, trust is an important factor. Considering its popularity and trust investors show in Bitcoin, you might think that Bitcoin is the best investment option. However, like every other cryptocurrency, there are pros and cons of Bitcoin as well. Most importantly, you need to be aware of Bitcoin scams.
Pros And Cons Of Cryptocurrency
Pros
Decentralized: One of the biggest advantages of cryptocurrency is that it is decentralized. No central authority can control cryptocurrencies. Bitcoin and all other cryptocurrencies are powered by blockchain which is a distributed database. One of the defining characteristics of this technology is decentralization.
Low transaction fee: When you are conducting transactions using fiat currency, you have to pay transaction fees. When the transaction requires conversion from one currency to another, you also need to pay a conversion fee. In the case of cryptocurrencies, there are no intermediaries. Therefore, that is a better system with low transaction fees as compared to other payment methods. You don’t have to pay high transaction fees when you are making international payments.
Secure Transaction: Cryptocurrencies use encryption to verify transactions. Each transaction is verified before it is added to a block. This is a complex technical process making it difficult for hackers or cybercriminals to access data or steal your money.
Cons
Volatile: Cryptocurrencies are highly volatile. You will get a better idea of cryptocurrency market volatility if you see the price history of Bitcoin. The value of a cryptocurrency can suddenly drop within a few months after reaching its peak. So, your investment in cryptocurrency can gain you great profits or you may end up losing your hard-earned money.
Income tax implications: According to the IRS, cryptocurrency transactions are taxable. So, you need to include these transactions in your tax returns. However, this is likely to be confusing as people don’t know how to report cryptocurrency transactions and what are taxes they need to pay.
Not widely accepted: You cannot use cryptocurrencies everywhere. Some countries have even banned cryptocurrencies. Only a limited number of vendors accept cryptocurrencies.
Criminal activity: Criminals can use cryptocurrencies for dark web transactions. The privacy of cryptocurrencies is of great use for criminals as well. They use cryptocurrencies for drug trafficking, money laundering and other criminal activities.