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Blog 31, Oct

Advantages and risks of investing in cryptocurrencies

Advantages and risks of investing in cryptocurrencies

Cryptocurrencies are recent assets with a very sophisticated logic of operation. Therefore, there are still many people looking to better understand how to operate with them.

Digital currencies have some advantages over physical currencies and other payment methods. The Bitcoin.org website lists the following for Bitcoins:

Payment freedom: With a Bitcoin, it is possible to send or receive any amount instantly anywhere.

Low fees: Currently, payments made with digital currencies are processed with low or even exempt fees. There are charges if users want to have faster confirmation of operations by the system. For commerce in general, there are services based on Bitcoins in which the processing of sales and the transfer of values ​​are carried out daily and with lower costs than traditional methods such as PayPal or credit card networks.

Security: According to the Bitcoin.org website, Bitcoin payments can be made without linking the user's personal information to the transaction. “This offers strong protection against identity theft,” he says. Another advantage is that the user can protect the money with backups and encryption.

Transparent: All information about the offer of Bitcoin units is available on the blockchain for anyone. No one, nor any organization, can control or manipulate the digital currency protocol because it is encrypted. With this, Bitcoin's core is recognized as trustworthy for being neutral, transparent and predictable.

Those who bet on the digital currency market, on the other hand, need to be aware of a series of details that are specific to this segment. Some of them are:

Degree of acceptance: As a relatively small number of people know and – even less – use digital currencies, there are few establishments that accept this form of payment, as reported by the Bitcoin.org website.

Volatility: Major price adjustments are not uncommon in digital currencies like Bitcoin. This is exactly because, little by little, cryptocurrencies are gaining visibility, which attracts many new users and ends up overvaluing the asset.

“These adjustments resemble traditional speculative bubbles: overly optimistic press coverage causes waves of novice investors to push up the price of Bitcoin. Exuberance then hits an inflection point, and the price finally plummets,” explains Ulrich. Some analysts are skeptical of this behavior, while others believe that the maturing of the market and the system tends to reduce volatility over time.

Security: While Bitcoin.org stresses security as a positive aspect of digital currency, Ulrich points out that if users are not careful they risk “erasing” or losing their Bitcoins. “Once the digital file is lost, the money is lost, just as with hard paper money,” he says.

Ulrich explains that digital currency wallets can be protected by cryptography, but it is up to the user to activate it. “If a user does not encrypt their wallet, Bitcoins can be stolen by malware,” he says. Likewise, cryptocurrency exchanges need to protect themselves from hackers – news about theft happens eventually.