Crypto Currencies as an Investment
Cryptocurrency, also known as crypto money, is the name given to digital means of payment based on cryptographic tools such as blockchains and digital signatures. As a payment system, they are intended to be independent, distributed, and secure. They are not currencies in the true sense. In 2009, the first cryptocurrency, Bitcoin, was publicly traded. In 2021, there were over 8,400 cryptocurrencies in use. Bitcoin currently has a market share in this segment of about 50%. Cryptocurrencies come with many definitions. A cryptocurrency can be defined as a digital currency that is created from computer code, it is called a blockchain.
A cryptocurrency can also be defined as a string of data that has been coded to denote a unit of currency. Cryptocurrencies are also referred to as digital currency. There are many different cryptocurrencies, of which Bitcoins are probably the most popular and well-known. Unlike traditional currencies, cryptocurrencies are free from government oversight and manipulation.
They are supervised using peer-to-peer Internet protocols. The strength and weakness of cryptocurrencies is the idle value, which is determined by investors and, in the case of most cryptocurrencies, is outside the traditional financial cycle and, at present, largely unharnessed by lobbyists.
Since cryptocurrencies are exposed to very strong volatility in the market, enormous speculative profits are possible. At the same time, the risks are very high, which can lead to a total loss of the investment. The annual return can be minus 100%, but also several 100% growth in value are possible. At the same time, the costs, such as spreads and exchange fees are not to be underestimated.
An investment in these underlying should be observed very strongly and should be covered only with a small part of the available capital. The investment period here depends very much on the goals and plans of the investor. In some countries, speculative gains are tax-free after a certain holding period.
Here invest not only very young people who simply find this topic exciting, but also large technology companies, banks, venture capitalists and entrepreneurs. The group of crypto investors is growing very quickly and includes all social classes. As an investor, you should be well informed about the respective coin and understand its advantages and disadvantages as well as this asset class.
UP TO ANNUAL R.O.I.
CAN BE USED FOR ILLEGAL TRANSACTIONS
DATA LOSSES CAN CAUSE FINANCIAL LOSSES
DECENTRALIZED BUT STILL OPERATED BY SOME ORGANISATIONS
SUSCEPTIBLE TO HACKS
NO REFUND OR CANCELLATION POLICY
Since the privacy and security of cryptocurrency transactions are high, it is difficult for the government to track down any user by their wallet address or monitor their data. Bitcoin has been used as a medium of exchange in many illegal transactions in the past, such as buying illegal goods on the dark web. Cryptocurrencies are also used by some people to convert their illegally acquired money through an intermediary in order to hide its origin.
The developers wanted to create virtually untraceable source code, strong hacking defences, and impenetrable authentication protocols. This would make it safer to put money in cryptocurrencies than physical cash or bank vaults. But if any user loses the private key to their wallet, there’s no getting it back. The wallet will remain locked away along with the number of coins inside it. This will result in the financial loss of the user.
The cryptocurrencies are known for its feature of being decentralized. But, the flow and amount of some currencies in the market are still controlled by their creators and some organisations. These holders can manipulate the coin for large swings in its price. Even hugely traded coins are susceptible to these manipulations like Bitcoin, whose value doubled several times in 2017.
An investment is considered volatile when its prices move aggressively up or down on a daily basis, as seen in the cryptocurrency market, making cryptos a high-risk investment, even if blockchain technology is the future. Fluctuations over 10% in value per day are not uncommon if we look at the past.
Although cryptocurrencies are very secure, exchanges are not that secure. Most exchanges store the wallet data of users to operate their user ID properly. This data can be stolen by hackers, giving them access to a lot of accounts. Some exchanges, like Bitfinex or Mt Gox, have been hacked in the past years and Bitcoin has been stolen in thousands and millions of US dollars. Most exchanges are highly secure nowadays, but there is always a potential for another hack.
If there is a dispute between concerning parties, or if someone mistakenly sends funds to a wrong wallet address, the coin cannot be retrieved by the sender. This can be used by many people to cheat others out of their money. Since there are no refunds, one can easily be created for a transaction whose product or services they never received.
PROTECTION AND INFLATION
SELF-GOVERNED AND MANAGED
SECURE AND PRIVATE
Inflation has caused many currencies to decrease in value over time. Almost every cryptocurrency is released with a fixed amount at the time of its launch. The source code sets the amount of each coin; for example, there will only be 21 million Bitcoins in the world. So, as demand increases, its value will increase, which keeps up with the market and prevents inflation in the long run. Thus, through scarcity, demand and value should increase in the long run.
Governance and maintenance of any currency is a major factor for its development. The cryptocurrency transactions are stored by developers/miners on their hardware, and they get the transaction fee as a reward for doing so. Since the miners are getting paid for it, they keep transaction records accurate and up-to-date, keeping the integrity of the cryptocurrency and the records decentralized.
Privacy and security have always been a major concern with cryptocurrencies. The blockchain system is based on various mathematical codes that are very difficult or considered impossible to decipher. This makes a cryptocurrency more secure than ordinary electronic transactions. Cryptocurrencies use pseudonyms for better security and privacy, which are not associated with a user, account, or stored data that could be linked to a profile.
A very big advantage of crypto currencies is that they are mainly decentralized. There are cryptocurrencies that are controlled by developers, but this number is rather manageable. So-called whales, such as Elon Musk, own a significant amount of different coins. Most of the time, after the ICO, i.e. allowing the coins to be traded publicly, the issuing organizations say goodbye to the control over those coins. This decentralization helps keep the currency monopoly free and in check so that no single organization can determine the flow and value of the coin, which in turn keeps it stable and secure, unlike fiat currencies.
A personal note
Bitcoin is often called virtual gold these days, and not without reason. In many circles, Bitcoin has almost reached the significance of gold, and in some cases even a more important significance.
There are more and more acceptance points where you can pay with Bitcoin. For example, it should be mentioned here that you can pay for your Tesla with Bitcoin. In addition, there are the older payment service providers, such as Visa, Mastercard and Paypal, which offer transactions in Bitcoins or other cryptocurrencies. Even a coffee at Starbucks can be paid for with coins without any problems. In some countries, such as South Korea, Japan, Scandinavian countries or African nations, it has become routine to be able to pay your bills with Bitcoins.
We continue to strongly believe that central banks will not let their monopoly on money and the power that comes with it be taken away so easily. Many central banks are working on digital currencies themselves. The ban on cash is a highly explosive topic in many countries. There are very many reasons for this, which we will not go into here, but will look at in more detail in a blog article.
However, the facts are very obvious and in addition, there is a new technology of encryption and the increasing distrust in current warrants. Therefore, in our opinion, in every portfolio should be a small area of new technology. However, it should be considered as a long term investment.
LINKS, PARTNER & PRODUCTS
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