What are the advantages and disadvantages of cryptocurrency

What are the advantages and disadvantages of cryptocurrency

Between enhanced security and delayed transactions, we reveal the real advantages and disadvantages of cryptocurrency.

The following statements do not constitute investment advice or any other advice regarding financial services, financial instruments, financial products or digital assets. They are intended to provide general information. The following statements do not constitute an offer to enter into a contract to purchase or sell financial instruments and financial products or an invitation to submit such an offer and purchase or sell any digital asset. Cryptocurrencies are subject to strong fluctuations in value. A decline in value or total loss is possible at any time. Losing access to data and passwords can also lead to complete loss.

Summary:

Advantages: Cryptocurrencies are based on secure and decentralized blockchain technology, independent of traditional banking systems. They operate 24 hours a day, and market volatility goes hand in hand with higher returns.
Disadvantages: Cryptocurrencies often experience extreme price fluctuations. Understanding their complex workings is a difficult task, and it can be difficult to adopt them on a large scale.
Despite high potential gains, it remains unclear whether cryptocurrencies will remain viable in the long term. There are also security vulnerabilities that can pose significant risks, especially to new investors.
Cryptocurrencies have the capacity to transform the financial world as we know it, even calling into question the very existence of traditional financial institutions. But what are the advantages and disadvantages of cryptocurrency? How do you decide which one to invest in, or even whether to invest at all?

If cryptocurrencies seem complicated to understand, don't worry. We're here to explain their real pros and cons so you can make informed decisions. And if these concepts are still a little vague, consult our guide to getting started with cryptocurrency.

6 advantages of cryptocurrency
Although cryptocurrencies are a relatively recent invention (Bitcoin, for example, was launched in 2009), they are already well established, and will be for a long time, with all the advantages offered. Between the promises of big revenue and ultra-secure 24/7 transactions, the world of cryptocurrencies offers a lot of benefits - if you know how to take advantage of them.

1. High risks...and high profit potential
   More than 10,000 cryptocurrencies are currently on the market and each has its own unique characteristics. However, they all have one thing in common: their tendency to experience sudden increases (and decreases) in their value. Prices are determined primarily by the supply of assets to “Bitcoin miners,” and the demand for those assets by buyers. This supply and demand dynamic can generate high gains. The price of Ethereum, for example, almost doubled between July 2021 and December 2021. Investors who were able to get involved at the right time must have welcomed this. The elevated risk, however, became apparent shortly after when the price of Ether fell below €1,000 – representing a reduction of over 70% since Christmas 2021.

2. The blockchain technology behind cryptocurrencies offers maximum security
   Some of the major benefits of cryptocurrencies lie not in the currency itself, but in the infrastructure that supports it. This is the blockchain, a decentralized data storage ledger that tracks every transaction undertaken through it. Once a transaction is entered on the blockchain, it can never be deleted. And because the blockchain is stored decentrally on multiple computers, no hacker can access the entire chain at once: once it's in, the information is secure for good.

3. Goodbye to traditional banks, the time has come for a fairer and more transparent financial system
   Generally speaking, our financial system revolves around third-party intermediaries who carry out transactions. Which means that when you make a transaction, you're giving your trust to one of these middlemen, and with the recession of the early 2000s, many people wondered if this was a good idea after all. Blockchain and cryptocurrencies offer you another solution. They are visible to everyone, everywhere on the planet. You can therefore invest in the financial markets and carry out transactions without any intermediary.

4. Cryptocurrencies are available 24 hours a day
   Another advantage of cryptocurrencies over banks is that their market is always open. With cryptocurrency mining and transaction recording 24 hours a day, there is no need to wait for the NYSE, NASDAQ or other stock exchanges to open to start buying, selling or trading cryptocurrencies. This has had such an impact that traditional stock exchanges are in turn looking for ways to carry out stock transactions outside bank opening hours...but we are undoubtedly still a long way from that. For investors who are attentive 24 hours a day, cryptocurrency could be the best way to generate income outside of normal working hours.

5. Cryptocurrencies could allow investors to counter inflation
   Cryptocurrencies are not tied to a single currency or economy, so their price is a reflection of global demand rather than national inflation, for example. But then, what about the inflation of cryptocurrencies themselves? As an investor, overall, you can rest easy. The number of assets is capped, so the quantity available cannot become uncontrollable, and therefore, no risk of inflation. Some currencies (like Bitcoin) have a global cap and others (like Ethereum) have an annual cap. But in all cases, this approach avoids inflation problems.

6. Accessibility and financial inclusion:
   Cryptocurrencies have the potential to provide financial services to unbanked and underbanked populations around the world. With just a smartphone and internet access, anyone can participate in the global financial system, opening up opportunities for economic empowerment and inclusion.

6 disadvantages of cryptocurrency
All this sounds fabulous, but are the prospects offered by cryptocurrencies really an El Dorado? Let's look at some of the disadvantages. Some can be easily resolved, others much less so. But it is always useful to be aware of it.

1. Understanding cryptocurrencies takes time and effort
   You may have to spend a lot of time before understanding this jargon and its universe. If you are not of the digital generation, the concept of cryptocurrency (not to mention blockchain) may seem abstract to you. Additionally, investing in something you don't really understand is a risk in itself. There are plenty of resources online to help you (including N26's blog series on cryptocurrencies). However, it is still recommended to study the advantages and disadvantages of cryptocurrencies in depth.

2. Cryptocurrencies can be an extremely unstable investment
   The price of a cryptocurrency can experience a sudden and dizzying rise (with associated benefits for investors!), then fall just as quickly to ridiculously low rates. If you are looking for stable investments, other options are probably preferable. The cryptocurrency market fundamentally thrives on speculation and its relatively small size makes it more vulnerable to price fluctuations. This can impact asset values, which is one of the major drawbacks of cryoptocurrency.

3. Cryptocurrencies have not (yet) proven to be a long-term investment
   Cryptocurrencies are now widely known and gaining popularity. However, it is good to remember that they were born barely 10 years ago. It was following the publication of a white paper on Bitcoin in 2008 that the concept really emerged. Stock markets, on the other hand, have been around for centuries. The London Stock Exchange, for example, was founded in 1801. Gold has been a safe bet for its depositors for millennia. But cryptocurrencies? No one really knows what the future holds for them. You must therefore be courageous to venture into these unknown lands as an investor.

4. Cryptocurrencies have real scalability issues
   You might think that digital currency transactions happen at lightning speed. This is the case, but up to a certain point. From a certain level, they encounter major difficulties which make them difficult to deploy on a large scale. Cryptocurrency providers recognize this problem and the people behind Ethereum admit that the blockchain has reached “a certain limit of its capabilities” which slows down the speed at which transactions can be carried out. This can create quite a frustrating experience for transaction participants, not to mention the potential financial losses that result.

5. Cryptocurrency newbies are more vulnerable to security attacks
   Cryptocurrencies may not carry the risks inherent to third-party intermediaries, but that doesn't remove any security risks. As a holder of crypto-assets, you could lose the key that gives you access to your funds, and therefore... all your shares. Finally, there is hacking, phishing and all other actions to try to gain control of your assets through malicious means. All seasoned investors pay close attention to this, but novice investors are more likely to fall victim to these traps.

6. Uncertain regulation
   Cryptocurrency regulations are still evolving. Different countries and jurisdictions implement varying regulations. This uncertainty can be a challenge for investors and businesses operating in the cryptocurrency space as they must navigate compliance requirements and potential legal risks.

What is the best cryptocurrency to invest in?
No cryptocurrency stands out more than all the others. It's a matter of personal choice. However, we can give you some advice before committing. Consider your personal risk tolerance: can you bear to lose a significant portion of your investment if the value of your assets collapses? Are you using these assets only to generate profits, or are you hoping to be able to use them to make purchases? Is it just about money, or are you looking to invest in assets with a greater social or environmental impact? The easy solution is to invest in the market leader: Bitcoin. He is the originator of cryptocurrency and has developed the largest information base in this field.

What are the advantages and disadvantages of Bitcoin?
Bitcoin, whose ticker symbol is BTC, has a multitude of advantages. The total supply is capped at 21 million bitcoins, ensuring no inflation, and its constantly headline-grabbing prices reassure investors that their investments are profitable. Bitcoin is the globally accepted cryptocurrency for making payments. Of course, there are also downsides. Bitcoin's blockchain infrastructure starts to slow down when it exceeds the rate of 7 transactions per second (a real problem considering Visa processes around 1,700 transactions per second!). In addition, because it is the most well-known cryptocurrency of all, it is widely targeted by hackers and scammers of all kinds. For more information on Bitcoin, see our article What is Bitcoin?

What else should I know before investing in cryptocurrencies?
Cryptocurrencies can be a minefield for novice investors. Between new terminology and complex technology, this is an area that requires a lot of research for some.