Cryptocurrency is used for a wide variety of things, but it essentially means a digital form of currency that currently exists electronically. As a new form of financial investing and an entirely new piece of the financial world at large, it is important to understand exactly what it is, whether crypto is safe, and how to protect yourself from any easy pitfalls within the space.
A lot of newcomers or skeptics will ask, “What gives cryptocurrency its value?”. For traditional fiat currency, or even the gold standard for example, there is a physical asset at play that is able to be used to represent its value. For cryptocurrency, the value comes intrinsically from its means of distribution and medium of exchange. If people suddenly lose interest in using bitcoin, for example, as a medium of exchange, then the price will suffer. It has no physical backing, and in turn, hinges solely on the userbase utilizing it effectively.
This inherently leaves cryptocurrency as a very volatile and traditionally risky asset class. There are ways to minimize risk, however. Stablecoins are a much safer asset within the crypto world. The majority of stablecoins are tied specifically to a physical asset or type of fiat. One of the most common stablecoins, Tether, is tied to the US dollar. So you can rest assured that it will at least not lose value compared to the dollar, however, don’t expect it to gain much either.
How to Avoid Crypto Scams
The risk surrounding the purchase and selling off of major coins is not the only risk involved with this space. The anonymity of crypto opens itself up to a lot of bad actors within the community at large. As transactions are harder to track and identities can be easily hidden, crypto can be used in potentially negative ways as well. All this means for the end-user who is trying to trade crypto though, is a lesson to make sure you always do your research and make sure you are only trading assets that you believe in and understand. In fact, this is the main critic that most mainstream attention draws to cryptocurrency. These types of bad actors exist within any industry in the world though and are just something that comes along with being human. All you need to do is stick to the fundamentals and do your due diligence before investing.
What are the Benefits of Crypto?
If cryptocurrency was all negative, then the hype surrounding it and this entirely new form of investment and market trading would not exist. There is a lot of good that comes out of this new form of digital currency as well. A benefits being transaction speed, accessibility to anyone, security, and transparency.
Without crypto, you would typically send money through a bank or another 3rd party service. In most cases, to move money around the world this could take multiple business days and cause a lot of uncertainty. With the worldwide access and fast transaction speeds within crypto, you could send money to your family overseas within minutes, with low fees and no hassle or middleman to deal with.
Accessibility within Crypto
Without the need for an institution, crypto is able to reach the hands of anyone with internet access. This means that there are little barriers to entry into the space, and coupled with the security of your wallet as well as the low fee transactions, crypto appears to be an extremely strong contender for becoming the standard way to send transfers of any size, quickly, to anyone.
Cryptocurrency is generally stored in a digital or hardware wallet. These wallets are locked with keys, usually a long string of letters and words. Without the knowledge of this key pattern, no one is able to access your funds. That means as long as you find a safe way to store your wallet key, cryptocurrency is an extremely secure asset with almost no means of losing your money. However, if you do not store your money in a wallet that you own, and instead keep it in an exchange, you need to be wary of that decision. There are many examples of exchanges scamming their users and running off with the crypto within the exchange wallets. (The Street)
All this means for the user, is that once you trade crypto, make sure to set yourself up a wallet that you own and transfer your assets there if you want to be entirely safe.
While being private and secure, crypto is arguably also the most transparent way of exchanging money and trading as well. The blockchain is a public thing, which means that you are able to search transactions, look up wallets, and see just about anything that happens on the blockchain if you’d like. This means if you know what you’re looking for, it is an incredibly transparent device that allows you to feel secure in its use.
If you do decide to jump into this world of crypto and maybe even pick yourself up some tokens, you need to make sure that you have the proper tools on hand to help you manage your financial accounting needs. One of the best solutions for you will be Ledgible.
With Ledgible, you can report and keep track of your crypto transactions with countless supported integrations as you dive into the crypto space with this new information. If you want to learn more about Ledgible and get started for free, click here.
Disclaimer: The author and Ledgible do not provide investment advice and nothing in this article is meant to be taken as such. This website is presented solely for informational and entertainment purposes and is not to be construed as a recommendation, solicitation, or an offer to buy or sell / long or short any securities, commodities, cryptocurrencies, or any related financial instruments.