This was recently demonstrated when the crypto bear market between May and July saw the total market cap fall to less than $1.5 billion, but it has since returned to its previous peak of around $2.13 trillion.
But what exactly is a cryptocurrency, and what are its main advantages and disadvantages from the perspective of investors?
What exactly is cryptocurrency?
A crypto-currency is a digital asset based on the blockchain technology principle, which essentially serves as a decentralised leader technology that is managed and stored on a network of computers (or nodes).
Various crypto assets can be’mined’ in this larger infrastructure, and each blockchain’s decentralised network allows the assets to exist outside of central government control and machinations.
As a result, unlike traditional investment vehicles such as forex trading, there is no central bank or government control, resulting in an immovable list of transactions that cannot be manipulated.
The term “cryptocurrency” refers to the distinct encryption techniques used to protect the network, ranging from single wallet addresses to encrypted private keys (which are used to decrypt encrypted data and process transactions).
The advantages and disadvantages of cryptocurrency trading
Finally, blockchain technology and crypto assets provide significant benefits to early adopters, customers, and investors, who are among the most disruptive entities in the current environment.
Customers and investors can use the immutability of crypto assets to operate in complete transparency, such as when processing anonymous transactions that are not directly linked to a bank or credit account.
In fact, because crypto wallets are completely decentralised and can frequently be opened without requiring proof of identity, you only need a password to secure your unique wallet address.
Another significant benefit of cryptocurrency is its resistance to macroeconomic inflation factors, which frequently weigh heavily on fiat currency.
In particular, as inflation rises, the value of a crypto token does not fall. Interest rate changes have no long-term effects on demand. This, combined with the limited supply of tokens such as Bitcoin, means that asset values are not subject to normal pressure.
It can also be argued that the underlying infrastructure has had issues in the past, including issues with scalability and transaction costs, among other things.
The good news is that new, third-generation blockchains are successfully addressing these issues, resulting in scalable platforms that will be able to deliver on the promise of this technology even further in the future.