Cryptocurrency is no longer the asset of the future. Digital currencies are here to stay and have been adopted by many businesses and niches. Cryptocurrencies have the potential to reshape the financial world as we know it. However, while disputing whether crypto assets will replace traditional finance infrastructure, we shouldn't forget there are two sides to a coin. Before considering investing in cryptocurrency, keep in mind the advantages and disadvantages of investing in cryptocurrency.

What is cryptocurrency?

Cryptocurrency is a digital asset secured by cryptography, making counterfeiting nearly impossible. Most crypto assets exist on decentralised networks and use blockchain technology, a distributed ledger enforced by a disparate network of computers. Cryptographic techniques encompass various encryption algorithms that ensure the integrity and privacy of digital currencies, enabling safe online payments without reliance on central authorities or intermediaries. A peculiar feature of cryptocurrencies is that no central authority is involved in issuing them, which keeps crypto assets immune to manipulations from governmental and official institutions.

Types of cryptocurrency

All crypto assets were created to serve a specific purpose as forms of digital currency. Take Ethereum as an example. Ether was released as a means of payment for validating transactions and opening blocks. After the blockchain's shift to the proof-of-stake consensus mechanism in September 2022, ETH gained an additional duty, serving as a blockchain's staking mechanism.

Ethereum is only one of thousands of other crypto assets available in the industry, each serving its specific function. Knowing the major types of cryptocurrency and the purpose of different crypto assets should help you decide which coins are worth adding to your cryptocurrency investment portfolio.

When familiarising yourself with crypto assets and learning the advantages and disadvantages of cryptocurrency, keep in mind that coin names differ from coin types. Therefore, here are the five major types of cryptocurrency, with some of the names of the most popular crypto assets in each category.

• Utility tokens serve specific functions of their blockchains (e.g., XRP and ETH).
• Transactional tokens are used as payment methods (e.g., BTC).
• Governance tokens represent voting rights on blockchains (e.g., Uniswap).
• Platform tokens support apps to use a blockchain (e.g., Solana).
• Security tokens represent the asset's ownership, like a stock that has been tokenised and the value of which has been transferred to the blockchain (e.g., MS Token).

If you've encountered crypto assets that do not fall into any of the mentioned categories, ensure the selected assets are legitimate.

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Pros and cons of investing in cryptocurrency

There are always two sides to a coin. The same rule applies to cryptocurrency investment. While funding crypto assets seems to be a lucrative opportunity, there is a certain risk of crypto investment that beginners and pros should be aware of. Let's get the 10 major pros and cons of cryptocurrency listed below.

Advantages of cryptocurrency investments

Cryptocurrency is a relatively recent invention that entered the market with Bitcoin's release in 2009. Being fully decentralised and accessible 24/7, digital currencies operate on decentralised networks that use blockchain technology to create a distributed ledger. Let's consider the 5 key advantages of cryptocurrency investment.

High potential returns

There are over 10,000 crypto coins on the market today. Each of them is unique and represents a specific project. However, they all have one common feature: all crypto assets experience sudden rises and falls. Price fluctuations are commonly caused by the demand for and supply of coins. Such supply-demand dynamics can bring hefty returns to crypto investors.

Decentralisation and transparency

One of the significant advantages of cryptocurrency is that it operates within a decentralised system tied to blockchain technology rather than the currency itself. Once you enter the blockchain technology, your transaction cannot be erased. The blockchain is stored decentrally across multiple computers, making it impossible to hack it simultaneously. 

Accessibility and liquidity

Unlike traditional financial establishments, cryptocurrency is always accessible. Any individual with an internet connection can seamlessly engage in crypto transactions using a computer or smartphone. Crypto exchanges are available 24/7, so you do not need to wait for StormGain's working hours to start buying, selling, trading, and exchanging your holdings. This has impacted the industry so much that regular stock exchanges have started looking for options to begin working outside of regular working hours. For investors on the go 24/7, cryptocurrency remains one of the best ways to generate income outside regular working hours. 

Portfolio diversification

Unlike stocks, bonds, and real estate, cryptocurrencies offer a unique opportunity to diversify your investment portfolio. Depending on your objective and risk tolerance, you can create a well-balanced and diversified crypto portfolio, including volatile crypto assets like Bitcoin and stablecoins like USDT. By adding cryptocurrencies to a portfolio, investors can reduce overall risk through diversification, as the price movements of these financial instruments may not always correlate with those of conventional assets.

Innovation and growth potential

Cryptocurrencies are at the forefront of innovation. For example, DeFi platforms and NFTs have recently made loud releases, opening unforeseen markets and investment opportunities. Besides, investing in cryptocurrencies allows early-stage exposure to new projects that could become major players in the future. We shouldn't forget to mention crypto airdrops, which are gaining momentum. These let users earn coins while completing simple tasks. 

Disadvantages of cryptocurrency investments

There are many advantages for users looking forward to making a crypto investment in 2024 and beyond. However, the legal status of cryptocurrency varies by country, and it is not recognised as a legal tender like traditional currencies. While there is a lot of glitter, we shouldn't forget the disadvantages of investing in cryptocurrency.

Volatility and risk

A cryptocurrency investment always involves risks of losing money. Trading cryptocurrencies can be complex and carries significant risks and benefits, especially for new investors. Digital assets are highly volatile. Spiking to drizzling highs can immediately change to terrifying crashes. Take, for example, the recent Bitcoin price movements when the BTC price dropped from its new all-time high of over $72,000 to the early August's $50,000 mark. Cryptocurrency investment is hardly your best bet if you seek a solution to make stable returns.

Lack of regulation

For this reason, this is the feature we list among crypto pros and cons. Cryptocurrency transactions are recorded on a digital ledger called blockchain, which allows for rapid execution compared to traditional banking methods. The crypto regulatory landscape is still evolving, and countries worldwide are implementing varying regulations. Cryptocurrency legality is one of the major challenges for investors as they navigate compliance requirements.

Security concerns

Although cryptocurrencies do not face the risks associated with central bodies, investors should still be aware of specific risks. Transferring purchased cryptocurrencies to a digital wallet for secure storage is crucial. One of the most common concerns of crypto investors is the risk of losing a private key that offers access to their crypto holdings. Crypto owners should also beware of hacking, phishing, and other attempts to gain malicious control over their holdings.

Limited adoption and acceptance

Although cryptocurrencies are getting more popular and widely accepted, using crypto assets for daily transactions is still challenging. Financial institutions are beginning to engage with cryptocurrencies, highlighting their potential to simplify transactions compared to traditional finance. Crypto's volatility makes it difficult for merchants to use digital coins as a stable medium of exchange. The complexity of managing crypto wallets can be a barrier for non-techies. Besides, speeds and fees can vary based on the network congestion, resulting in delays and higher payment costs.

Environmental impact

The last but not least important aspect of the disadvantages of investing in cryptocurrency is the impact of cryptocurrency mining on the environment. Unlike traditional financial systems that can suffer from a single point of failure, decentralised cryptocurrencies mitigate such risks, enhancing security and reliability. Critics argue that mining such energy-intensive crypto assets as Bitcoin produces a carbon footprint comparable to that of entire countries. This has resulted in the evolution of green cryptocurrency and a massive shift from Proof of Work (PoW) to the Proof of Stake (PoS) consensus mechanism.

Closing words

Making any cryptocurrency investment always involves risks that neither experienced investors nor newbies should forget. At StormGain, we are letting you make informed investment decisions only after you do some practice. On our platform, you can play around with a demo account to practice and master trading skills before switching to a real account. Check it out yourself, and always remember the advantages and disadvantages of investing in cryptocurrency, which are listed above.

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