The advent of blockchain technology has made a tremendous change in the world’s financial system. One of the greatest outcomes of this is cryptocurrency. So for the first time now in human history, people everywhere can trust each other and transact peer to peer without the involvement of middlemen. Check it out: https://coinswitch.co/
Since the popularity of crypto is increasing over time, deepening your knowledge of it will open the door to a new method for investment. If you want to earn interest on cryptos, you’re at the right place. In this article, we’ll explain what cryptocurrency is and help you have a full understanding of how to use crypto to make money. For better understanding, you can visit Dchained and join their courses.
What Is DeFi?
Before going into detail about what cryptocurrency is, we should first understand the underlying system, which is Decentralised Finance.
Decentralised Finance (or DeFi) is a blockchain-based form of finance. It is all about recreating traditional finance by transforming them into trustless and transparent protocols via smart contracts and tokens.
This system aims to carry out traditional activities such as lending, borrowing, investing in platforms that are decentralised open-source and do not rely on big institutions such as banks, brokerages or exchanges.
What Is Cryptocurrency?
So the idea of creating a digital currency independent of any central authority that allows people to make payments directly to each other is where crypto begins. Without any technical lingo, it’s basically a digital asset.
Crypto is a virtual currency that can be traded and exchanged for goods. You can think of it as tokens, so you exchange real money for these tokens and then you use these tokens to buy actual things.
There are thousands of different crypto currencies available, but the biggest ones that you should be aware of are Bitcoin, Ethereum, and Ripple.
Why Is Cryptocurrency So Popular?
Cryptocurrencies appeal to their supporters for a variety of reasons. Here are some of the most popular:
Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable.
Some supporters like the fact that cryptocurrency removes central banks from managing the money supply, since over time these banks tend to reduce the value of money via inflation.
Other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralised processing and recording system and can be more secure than traditional payment systems.
Some speculators like cryptocurrencies because they’re going up in value and have no interest in the currencies’ long-term acceptance as a way to move money.
4 Things To Know Before Investing In Cryptocurrency
Before you say good-bye to your dollars and hello to Bitcoin or Ether, there are a few things you need to know.
1. Cryptocurrencies are volatile
The value of cryptocurrencies goes through extreme ups and downs. In 2017, the value of Bitcoin swung between $900 and $20,000!2 Someone sneezes and the price drops! Investing in cryptocurrency is risky, to say the least. Of course, all investing carries a degree of risk. But you should always avoid unnecessary risks, especially when it comes to your hard-earned money. Don’t play poker with your financial future.
2. There are lots of unknowns
There’s still a lot that needs to be ironed out with how cryptocurrencies work. Think about it: Nobody even knows who the founder of Bitcoin is! Relatively speaking, only a small percentage of people in the world understand the system and know how to operate it. Ignorance makes you vulnerable. We always advise people that if you can’t explain your investments to a 10-year-old, you have no business investing in them to begin with. You’re setting yourself up to do something stupid.
3. Cryptocurrencies can be used for fraudulent activity
People who want to remain anonymous and avoid regulation from banks or the government will use cryptocurrencies to make shady deals on the black market. Money laundering is also a problem in the crypto world. Now hear us on this: We’re not saying that everyone who uses cryptocurrency is a bad person. But we are saying that if someone wants to commit criminal activity and avoid being tracked, the crypto world is an ideal place for them.
4. Cryptocurrencies have an unproven rate of return
Trading in cryptocurrency is like gambling. Because it’s exchanged peer to peer without any tie to regulatory standards, there’s no pattern to the rise and fall of its value. You can’t predict changes or calculate returns like you can with growth stock mutual funds. There just isn’t enough data, or enough credibility, to create a long-term investing plan based in cryptocurrency.
What Are The Risks Of Cryptocurrencies?
The risks of trading cryptocurrencies are mainly related to its volatility. They are high-risk and speculative, and it is important that you understand the risks before you start trading.
They are volatile: unexpected changes in market sentiment can lead to sharp and sudden moves in price. It is not uncommon for the value of cryptocurrencies to quickly drop by hundreds, if not thousands of dollars.
They are unregulated: as a decentralised currency, cryptocurrencies are currently unregulated by both governments and central banks. They were developed to be free from government oversight or influence and are instead monitored by peer-to-peer internet protocol.
They are susceptible to error and hacking: as a digital currency, cryptocurrencies are susceptible to technical glitches, human error or hacking.
They can be affected by forks or discontinuation: cryptocurrency trading carries additional risks such as hard forks or discontinuation. When a hard fork occurs, there may be substantial price volatility around the event, and we may suspend trading throughout if we do not have reliable prices from the underlying market.
Final Words: Should I Invest In Cryptocurrency?
Like it or not, cryptocurrency is practically everywhere these days and no longer just for day traders and nerds. In fact, many traditional businesses are integrating cryptocurrency into their platforms in some form, or using it as a means to launch other types of products.
Although there are certain risks present in the crypto market, it’s worth your investment. However, bear in mind that taking risks and improving your self-knowledge of this potential field is important if you want to start investing in cryptocurrencies.
