Great opportunities and risks of cryptocurrencies 

Cryptocurrencies have become the basis for a complete transformation of traditional financial instruments, domestic payments, and intercontinental transactions. Although virtual or digital currencies using encryption methods did not appear so long ago. In 2009, Bitcoin was introduced to the general public and became the main driver of further crypto boom. The industry with a capitalization of more than $3.1 trillion attracts not only those who like fintech but also global giants such as Mastercard, Tesla (accept Dogecoin for payment), PayPal (payment service), AirBaltic (airline carrier), Sotheby’s (auction house), Galaxy Digital Holdings, MicroStrategy Inc., European banks such as Sparkasse are investing in the development of services for trade and exchange. In addition, the number of companies offering additional services, such as crypto wallets, trading platforms, exchangers, debit cards, etc., is increasing. In Europe, the number of cryptocurrency ATMs is growing by 5-10% annually; the figure has already reached 1584, with 38,279 ATMs operating globally. The United States is in first place, Canada is in second place, and Australia is in third place with 1107 installed crypto ATMs. Bitcoin was first equated to legal tender in El Salvador in 2021. 

Digital assets provide investors, whose number reaches multi-millions, with the opportunity to make huge profits in a short period of time and take advantage of innovative technologies. However, at the same time, there are risks associated with cryptocurrency. The unpredictable nature of crypto coins leads to high volatility and the potential threat of losing all the investor’s money. These factors should be taken into account when building a strategy for further investment in digital assets.

What are cryptocurrencies based on and why are they so interesting?

Cryptocurrencies are decentralized digital assets. This means that there is no single regulator, government, public body, or entity that controls/manages transactions, issuance, or the number of users. 

All crypto transactions take place in a blockchain or distributed ledger represented as blocks, each containing transaction data. It is impossible to make changes, correct, or delete records, as the work of such a public registry is supported by a network of participants scattered around the world, who use PCs to verify new transaction data and confirm the authenticity of the information.  

The decentralized nature of the system allows for a much faster and cheaper transfer of money, as there are no intermediaries in the form of banks and central authorities. But what are the risks of cryptocurrency in this case? The disadvantages of this nature of money include the fact that no one can guarantee value, regulate supply and demand on the market, or officially accept a digital asset as legal tender.

Potential rewards of cryptocurrencies and opportunities to significantly increase investments?

There is a huge number of coins on the market – more than 100 thousand, everyone can choose from a variety of altcoins, stablecoins, meme-coins, or NFT, depending on the technology he believes in and believes that in the future it will bring profit. Most participants focus on the price of Bitcoin and the top 10 altcoins to determine the market sentiment. 

Many new projects appear on the market, which increases cryptocurrency risk, as it is not always possible to understand the purpose of creating a crypto coin and its further promotion on the market.  

Crypto tokens can be categorized into types that should provide:

• Utility to its network, like XRP and ETH.
• Conducting transactions around the world, like Bitcoin.
• Governance, whereby having a certain number of coins, a participant is proportionally given several votes and the right to govern on the blockchain (Uniswap.6).
• Security: owning such tokens gives the right to own a certain asset like stocks, etc.
• Application support (Solana.7).

This new decentralized money can be a good investment and bring significant returns compared to traditional instruments like stock currency markets. 

Opportunity to increase income and hedge inflation

Many people use virtual currencies as a hedge against inflation. Bitcoin, for example, has a finite number of coins that must be mined. This means that demand will always grow, and with it, so will the return on investment for investors. Even though how risky cryptocurrency is, many believe that the supply limiting mechanism is what will give capital growth and act as a hedge against inflation in the long run.

No influence of traditional financial institutions

Crypto-enthusiasts believe that it is the lack of influence of traditional financial institutions, regulators, governments, and government agencies on the flow of crypto-coins that has led to crypto-assets becoming a safe mechanism for investing money. Virtual coins do not have a direct correlation with stock markets, when stock bonds fall, it will not be related to the rate of cryptocurrencies. They can also serve as a good tool for portfolio diversification, provided that all cryptocurrency risks are taken into account. 

Open and transparent system for all

Any user can buy, exchange, and store crypto assets in their wallet. There are no restrictions or limits on the amount, quantity, or type of coins. This is an open and transparent system for everyone, without financial intermediaries, central banks, and other government services, without the need to have a credit history or identification. Anyone, even without a bank account, can use financial services using virtual assets.

In addition, blockchain, or a network consisting of blocks, which ensures the safety and immutability of the record, provides complete security of payments. Also, how does cryptocurrency work apply to the concept of cryptocurrency wallets with public and private keys that protect data and help secure transfers?

International payments 24/7

The benefits of cryptocurrency include the speed of international transfers. A regular currency payment from one country to another can take up to 5 working days, with the provision of a list of documents, confirmation of the source of money, KYC procedure, and payment of commission for financial intermediaries. Payments with the use of innovative money have no borders, and country restrictions are available 24/7, at any moment, a user can send money from his cryptocurrency wallet to another cryptocurrency wallet. The whole process takes a few minutes with minimal, sometimes even zero commission. 

Main risks: what should be considered before investing in cryptocurrencies?

Investing in cryptocurrencies can bring income that is several times higher than the income received with the help of traditional instruments. But it is worth remembering the pros and cons of bitcoin before introducing a new coin into your portfolio. 

The immutability of a transaction also means that it is impossible to return or cancel the transaction. The absence of personal data when transferring funds does not ensure complete anonymity because there is a digital trace that can be used to track the user. In addition, a market with such an increase in capitalization and the number of users attracts fraudsters who want to hack into the network, conduct phishing attacks, lure all sorts of information about cryptocurrencies, and get access to funds.

Mining or coin mining requires large investments and electricity, which is not always available for ordinary users but only for large companies with powerful equipment.

Significant price fluctuations

Although the advantages of cryptocurrency include lack of control and regulation, it has a downside, such as high volatility. Significant price fluctuations occur in short periods of time, which makes it very difficult to predict price charts. Also, the appearance of new coins is characterized by instability in their price. Sometimes, they can bring huge profits and, in a second, collapse to a minimum.

No single legal status

The disadvantages of cryptocurrency include the fact that there is no regulation. Crypto coins do not have one single legal status. Some countries equate crypto assets with securities, while others equate them with means of payment or commodity, a property right. Confusion in the definition complicates the purchase/sale of coins with further specification of data in declarations of legal risks. In addition, the unregulated environment attracts attackers hackers because they are not punished for any crime (theft, profile hacking, cyber attacks on exchanges, etc.).

Cyber ​​attacks are causing significant losses to users

When researching what potential cryptocurrency is and further investing in it, it is worth keeping data security in mind. The main goal of a cyber attack is to gain access to users’ private keys, passwords to the exchange profile, etc. Loss of private keys means loss of funds, and the one who has the keys has access to money management. That is why cyberattacks are improving every year, causing significant losses for users. Various methods of fraudsters include phishing attacks, malware, luring passwords, and recovery phrases.

The negative impact of mining on nature

A detailed analysis of all cryptocurrency risks and benefits will bring positive results and benefits. But there is another process that should not be forgotten – mining. Mining or coin mining brings huge profits, but the downside of this process is the damage to nature. Environmentalists have shown data that indicated a significant increase in energy water requirements. Bitcoin mining releases 140 million tons of CO2 into the atmosphere every year, and the annual energy consumption is 151 TWh. To repair the damage to nature, it is necessary to plant 3.9 billion trees Miners have started to use renewable energy sources, but solar and wind can only provide 2% and 5% of the electricity needed. Most of the mining takes place in countries such as the US (38%), China (21%) and Kazakhstan (12%).

Tools and approaches that can secure cryptocurrency investments

There is no direct correlation between high-risk, high-reward crypto because the movement of all cryptocurrencies is difficult to predict, as well as to understand what exactly can affect the market. But it is still possible to reduce risks by using several tools at once, such as:

• Have in your portfolio several types of crypto coins, not just the ones that have appeared. Now, there are more than 100 thousand coins on the market. Even promising technologies do not guarantee a takeoff and a long existence in the market. The market can fall and rise sharply.
• Determine for yourself the degree of risk and the possible level of losses, but do not go beyond it.
• Do not submit to emotional impulses or excitement in the market, set a stop-loss. Analyze in detail those or other events, and find the reasons for the rise and fall of cryptomonads.
• Choose a trading platform with a good reputation, protecting from cyberattacks, a transparent policy for its clients, and two-factor authentication.
• Use cold storage crypto wallets to store funds, securely store passwords, and access the system.
• Fraud schemes are always evolving, and new technologies are being developed and applied, so paying extra attention to data retention and monitoring what is happening in the market at some point can save money.

Summary

Innovative technologies in finance help to experiment with a variety of types of crypto coins, think through strategies, diversify investments, and learn new approaches and innovative methods of working with money transfers. In the crypto world, users have a wide range of opportunities, but they are also exposed to great risks.