Cryptocurrencies vs fiat currencies
Cryptocurrencies are the most trending topic across the globe these days. Some of the other cryptocurrencies have been making big headlines. These digital currencies have ballooned in terms of valuation. According to CoinMarket, there are more than 5,000 crypto assets on the market with a cumulative market capitalization of US$2.55 Trillion. Unlike most fiat currencies which have deep-rooted physical notes and coins, whereas the new trend of cryptocurrencies is completely different in nature. They use cryptography for everything from ensuring ownership to securing new transactions.
For the past few years, the banking system has been facing the looming threat of competition from mobile payment companies and fintech startups. While the traditional financial system has been around for at least a century, the digital assets market is relatively younger. But these assets are evolving quickly and might act as a replacement for the existing financial instruments, such as bonds, cash, and more.
Understanding the edge of cryptocurrencies
While fiat currencies are issued by the government and deemed legal tender in that particular area, in contrast to it, cryptocurrencies are not controlled or backed by any single entity. They can be used anywhere in the world without any restriction. Since the inception of the cryptocurrency ecosystem, decentralization has been a major focus of the technology. Bitcoin was presented as the first digital currency as a hedge against the prevailing economic system that could be crippled by incompetent decision-making. But the decentralization of Bitcoin has proven to be effective several times over the past decade.
But the two major challenges hindering widespread cryptocurrency adoption currently include technical literacy and scalability issues and the underlying blockchain technology. Many talented developers are already working on potential solutions such as Proof-of-Stake to overcome that particular problem.
Even though the prices of cryptocurrencies have been volatile. Without any central authority of regulating them, the price of cryptocurrencies moves. The way to mitigate one’s risk while investing in cryptocurrencies would be to treat it like any other risk-high reward investment instrument. Investors would be best advised to avoid putting a very large part of their savings in cryptocurrencies in much the same way as they wouldn’t invest solely in any other single instrument. Further, while investing in cryptocurrencies, prudent investment practice would recommend a diversified portfolio so that a sudden drop in any one cryptocurrency does not wipe out the entire invested amount.
Fear of losing your private key is like being scared of losing your net banking or email password. It is possible, but basic security steps can make sure it doesn’t. Keep a copy of the key or password in a separate secure location, and you will ensure that you aren’t locked out of your account.
When we look at the overall performance of the cryptocurrency, investing in cryptocurrencies is like investing in any other instrument. As that with the mutual fund investments that come with a long warning at the end, Sensible and basic security practices will go a long way in securing your cryptocurrency investments.