Today, cryptocurrencies have become a highly watched and popular asset for more than a decade. You may be wondering what this cryptocurrency is. how was born and should it be in the investment portfolio or not? But if you are not familiar with cryptocurrencies or Rhombus Blockchain technology. To start talking about the basic concept of this cryptocurrency can be a long and long story.
But this time, we will summarize the content as a guide for investing in cryptocurrency. What is digital currency? How does cryptocurrency work? What are the benefits and risks of this form of investment? including how to invest in cryptocurrencies in short.
- What is Cryptocurrency?
Digital currency or cryptocurrency Cryptocurrency is a virtual currency used on the blockchain network. It is featured as a decentralized currency. and can be used to pay for goods and services like other currencies What’s more, it has the ability to retain value as well as add value. This feature is what attracts investors to be more interested in this product.
The world of crypto-currency began with the launch of Bitcoin, which was largely discussed as the first successful and widely known digital currency to be put into operation. Years later, Bitcoin worked as a peer-to-peer payment system, insisting that it was decentralized and that there were no intermediaries for transactions.
After the first digital currency, Bitcoin, it became more and more popular. Of course, other cryptocurrencies are gradually entering the market as well. This gives investors access to a wider variety of investment options each year.
- How do cryptocurrencies work?
Cryptocurrencies work similarly to conventional currencies in that they can be used to pay for other goods and services and store them in order to maintain their value. But in this respect, there is still a difference in the technology behind the cryptocurrency itself. Whereas fiat currencies operate with assets or government backing. Powered by various financial institutions such as commercial banks But cryptocurrencies are based on the technology and the computer cryptography behind them.
Cryptocurrency transactions are Fast and secured and recorded in a decentralized account. These accounts are called blockchains, and every time a cryptocurrency is traded, an order initiates a transaction to the blockchain. It is a large database network that brings together users of that cryptocurrency. Anyone can join this blockchain network. But personal data such as account holder information Transaction data, etc. will not be disclosed. But it will be saved as a data code only. This makes this system highly secure and private. At the same time, it provides transparency that can verify (unknowingly) transactions with a reverse cipher.
in every transaction sent to the blockchain network, There is a digital process that helps verify and verify transactions to prevent fraud. And a well-designed crypto-currency blockchain system can prevent duplicate transactions and prevent fraud in the system.
- Why has cryptocurrency become so popular?
While the privacy and security of cryptocurrency transactions will become the main selling points of using this currency. But for investing, cryptocurrencies also have other possibilities that make them stand out among the many assets in the market. And these are some of the advantages of investing in cryptocurrency:
Cryptocurrencies are always part of the exciting financial markets. With price movements that fluctuate in a way that can be positive and negative in the day by ten percent. This is a very wide price range compared to other assets and this is a great opportunity for traders to speculate.
True, there are other assets such as gold or oil and currencies that are traded 24 hours a day, 5 business days of the week. But for cryptocurrencies, it can go beyond that.
The ability to ensure the risk of inflation.
Many cryptocurrencies have a fixed amount of money in the system such as Bitcoin, or a certain gradual increase, such as Ethereum, and in some, such as Binance, coins are burned in the system. This makes the likelihood of inflation occurring in the system very low. This factor makes digital currency different from fiat currency in that investors do not know how the central bank of each country will implement its policy on the money supply in the system until it may cause inflation. In this view, crypto-currency investments tend to depreciate less. and is of interest to investors
The ability to diversify investment portfolios
Some investors see cryptocurrency as an alternative to portfolio hedging similar to gold hedging. A study on the use of Bitcoin to hedge investment portfolios in combination with asset portfolios in the US, Europe, and China found better performance. In this respect, it has an effect on returns but does not reduce the volatility that occurs in the portfolio. If the investment from 2015-2020 has 10% Bitcoin in the portfolio and 90% SP500, it can generate an annual return of more than 26.8%.
- Precautions for investing in cryptocurrency
from the foregoing Cryptocurrency can provide many advantages for investors. But everything has its drawbacks and caveats. And for cryptocurrencies, there are some caveats to invest in as well, namely:
The volatility of cryptocurrencies can bring huge returns. On the other hand, this factor is considered an additional risk in investing. So if you decide to enter the cryptocurrency market Make sure you do your homework well in both researching and implementing risk-management strategies.
Stores that accept payment are limited.
And it has been used to pay for goods and services more widely. But the number of merchants that accept these cryptocurrencies is still small number. This is due in part to the highly volatile and rapidly volatile value of cryptocurrencies.