With the current buzz surrounding crypto-currency, most of us have at some point or another contemplated investing in digital currency. But a question which holds most of us back is whether crypto-currency will emerge as the ‘conventional’ currency or will it prove to be just another passing fad?
Currency Had to be Next
In this age of digitisation, everything has already moved online. Businesses first started to realise the reach and potential of the internet to facilitate their interests. The same benefits that businesses look to avail from operating online are also applicable to currency, one of which is having global exposure.
With crypto-currency come the advantages of reduced transaction charges and the convenience of having a global currency. But with it also comes the risk that every lucrative investment faces at its prime, which is whether it would sustain its value through the highs and lows of its market.
However, having an understanding of how it works will help investors make a well-informed decision about whether they should invest in the crypto market or not. When investing money in anything, a business owner or even an individual should seek the advice from an accountant. Working with a small business accountant can be far more beneficial than working with national businesses, as they will take the time to understand the individual needs of your small business.
Crypto vs. Traditional Currency
What sets crypto currency apart from traditional currency is the lack of control that banks and other financial institutions can exercise over its value. This lack of influence gives greater flexibility to crypto currency in terms of operations and usability compared to traditional currency.
Crypto currency is also popularly known as decentralised currency or peer-to-peer money. The most unique feature of this currency is that there is no dependence on a third party for seeking validation of a transaction.
With benefits such as these, this form of currency makes us imagine money in a whole new way and alters many of the data driven processes. As of now, most nations of the world follow the fiat currency model, in which a central bank holds all monies. There are various physical forms in which this money can be represented such as coins, bills, certificates of deposit, as well as bank transfer.
The value of this money is determined entirely by the bank and the input or consent of consumers makes no difference at all to this value. Even though it is you who holds the paper bills in your wallet, their worth is actually decided by the bank.
An encrypted piece of computer code represents the decentralised currency’s value and it is known as a coin. The code is known to be exceptionally hard to hack or replicate but is straightforward to verify.
There are two keys associated with a coin, one of which identifies the currency, whereas the other identifies the owner of the coin. Since the coin may pass into several hands, the second key can be transferred from person to person.
Benefits of Crypto-Currency
The value of crypto-currency, unlike that of traditional currency, is not determined by a central bank, but by its demand among consumers. Following are some of the benefits:
- Decentralised currency is unaffected by collapses or failures of the bank. They do not carry high banking fees and their handling charges is not governed by policies such as those designed by banks.
- Payments can be made internationally making them borderless in nature. Its working is based on the limits put in place by the traditional banks which deal in fiat currencies. In this way, large transfers can be made at minimum charges.
- Crypto-currency can be suitable for those nations which are not stable when it comes to their economy and value of fiat currencies. Also, the fact that its value does not fluctuate in response to variations in tariffs and exchange rates can add to the financial stability of weaker nations.
- People residing in countries that have fewer banks or no banks at all can still perform financial transactions as the only requirement for transacting crypto-currency is having a Wallet.
- Crypto-currencies make use of blockchain technology which handles storing and processing of transactional data in a more secure way. Thus it is more reliable than the techn0logy employed by most financial organisations around the world.
Why You Should Invest
While the answer to this question entirely depends on your risk appetite, following are some points that work in favour of crypto-currency:
Ease of Use
With just a virtual wallet, crypto-currency payments can be transferred to any corner of the world within seconds or minutes, irrespective of the size of transaction. All you need to transfer the money is an internet connection.
The question of counterfeit currency does not arise as crypto-currency does not exist in paper or coin format. They are also quite difficult to hack and there are teams in place which ensure that such hacking does not take place.
The username of owners remain unseen and the only thing required to complete a transfer is the unique wallet identifier. It is an important factor for people who prefer to keep their financial transactions private, which is something that traditional banks do not offer. Although not entirely anonymous, crypto-currency definitely offers more privacy than conventional banking.
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Traditional banks are severely restricted when it comes to their operating hours as they are subject to off hours, location closures and statutory holidays. Transactions involving crypto-currency on the other hand can be performed at any hour, whether it is day or night and on any given day, be it a working day or a holiday.
Increase in Value
Crypto-currency is an investment which has been able to record excellent growth over time despite the several highs and lows that it has encountered. Though the technology behind crypto-currency has not been put to test or at least not to the extent to speak of its security, the advantages of using blockchain technology could help crypto-currency gain strength in a fiercely competitive market.
Why You Should Wait
Limitations of Technology
While it would be unfair to count the limitation of bitcoin as an overall limitation of crypto-currency, one cannot rule out the fact that the failures of bitcoin will negatively impact the whole crypto-currency ecosystem.
Bitcoin has been designed in a way that it can only process a few transactions per second. On the other hand, its competitors such as Visa can process hundreds of transactions simultaneously.
As you may be already aware, there are many crypto-currencies on the market which are fighting amongst themselves to emerge as the industry standard. It is firstly difficult to predict whether any currency on the market will become the most commonly adopted. Secondly, if any such standardisation does take place, which currency would be crowned as the ultimate crypto-currency?
This implies that investing in just one form of crypto-currency can carry a huge risk for the investor. For this reason, industry experts advise investors to have a diversified investment portfolio.
What should an investor do if the crypto-currency he or she invested in ceases to exist? There have been cases where creators of a new type of crypto-currency have fraudulently walked away with a lot of money leaving behind no support for buyers and huge financial losses for investors.
One of the best features of crypto-currency is that a transaction once made cannot be reversed. But it can also prove to be a major glitch if hackers gain access to one of the key identifiers. Once the money is gone, it is gone and there is no fraud protection system in place to track the movement or reverse it.
Like any other investment scheme, crypto-currency has its own set of pros and cons which must be evaluated carefully before making an investment.
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