Like every new invention, people are debating over whether cryptocurrencies are safe or not. People who have used traditional fiat currencies their entire lives might feel insecure about switching over to a new type of payment method.
There are several misconceptions regarding the security of cryptocurrencies and their viability. Many of the new technologies used in cryptocurrencies are unknown to the general public. This article aims to demystify the cutting-edge concepts behind cryptocurrencies and explain whether they are safe to invest in or not. We’ll also be plotting out the disadvantages of cryptocurrencies in this article.
What Is A Cryptocurrency?
Cryptocurrencies are decentralized digital currencies made on blockchain which is a peer-to-peer computer systems network. In simpler terms, these currencies are not regulated by any central agencies like the government.
Unlike other fiat currencies, cryptocurrencies are not commodity-based money. Cryptocurrencies are created on the blockchain, which is a public ledger. All the transactions are recorded on the blockchain, making cryptocurrencies immutable and difficult to manipulate.
Cryptocurrencies are added into circulation through a process called mining. Crypto miners use specialized hardware to solve difficult mathematical problems, which in return earns them coins as rewards. Investors can also buy cryptocurrencies directly from the brokers and exchanges. These cryptocurrencies are stored in crypto wallets and can be transacted or exchanged.
Is Cryptocurrency Safe?
Many of the investors are currently shifting to cryptocurrencies. Why are they shifting to crypto investments even after knowing that it is highly volatile? Do people take these risky endeavors just to make huge profits?
The answer to the question, ‘Is cryptocurrency safe?’ is a lot more complicated than a yes or no. Take a look at what makes cryptocurrencies a safe investment option:
- Decentralization: Cryptocurrencies are not regulated by any government. They are based on a network of interconnected computers that allows anyone to send and receive payments. The value of a crypto coin is not set by a government as it is not pegged to anything. Many of the cryptocurrencies give the holder power to vote on the governance of the crypto providers, making it a democratic process.
- Immutability: Cryptocurrencies are created on blockchain. Blockchain is a cutting-edge technology where records of transactions are embossed. This makes cryptocurrencies transferable and immutable. The transaction details regarding cryptocurrencies are transparent and can be accessed by anyone, making it corruption-free.
- Security: Your cryptocurrencies are stored in your highly secure crypto wallets using a private key. The public key and private key work in tandem to encrypt and decrypt the data during crypto transactions. If you ever lose your private key, your funds become inaccessible. Cryptocurrencies are also secured by blockchain, which is a group of interconnected computers. Proof of work and proof of stake also helps in securing crypto transactions.
How To Safely Invest In Crypto?
Ever since cryptocurrencies became popular there have been many exchanges and marketplaces popping up, where you can buy and sell cryptocurrencies. But how can you safely invest in cryptocurrencies?
- Choosing a Secure Platform: Unless you are a crypto miner, you can buy cryptos directly from exchanges. Be sure to select the most secure platform to buy cryptocurrencies. Make sure that the platform conforms to the international and regional regulations regarding cryptocurrencies. Platforms should be compliant with KYC regulations and anti-money laundering rules. Be sure that the platform offers the best security for your crypto investments.
- Research the Market: Research the viability of crypto investments in your country. Follow crypto analysts, investors, and influencers to get minute-by-minute updates about everything happening in the crypto realm. Identify the best platforms to invest in and the best cryptocurrencies, and use various analytic tools to determine the direction of the market.
- Determine the Risks: Decide how much you wish to invest and how much you are willing to lose if the market goes against your position. Usually, only 2-10% of your initial deposit should be used for buying cryptocurrencies. Make a risk profile and determine a selling limit. Restrict your losses and be ready to sell the assets in case it turns out to be against your research. Never invest the money that you cannot afford to lose.
What Are The Risks Involved?
- The prices of cryptocurrencies are highly volatile.
- Cryptocurrencies are not legal in some countries since they cannot be regulated by the governments.
- Cryptocurrencies are highly susceptible to hacking.
- You cannot reverse a crypto transaction.
- There has been a rise in cryptocurrency scams.
- Pump-and-dump of cryptocurrencies is quite common where people manipulate the crypto market to make huge profits.
Conclusion
Cryptocurrencies are lucrative and, at the same time, a risky investment option. You need to research a lot before investing your money in cryptocurrencies. The recent advancements in technology have made investing in cryptocurrency a safe process.
While other fiat currencies are highly influenced by world events and inflation, cryptocurrencies resist inflation and their value stays the same.
Many cryptocurrencies are limited in supply, which causes an increase in demand in the year to come. Therefore, cryptocurrency is a safe investment option if you know what you are dealing with.
