Digital currencies or crypto currencies built on top of block chain are the latest asset group that has gained popularity in terms of investments. From billionaires to new investors, investing in cryptocurrencies is something most people have considered at some point. However, before you make any big decision about investing in cryptocurrencies, it is important to understand the value of investing in crypto currencies such as Bitcoin, Ethereum, Litecoin, Bitcoin Cash, Aave, Chainlink, and SushiSwap.
How Exactly Do Crypto Currencies Work?
As a means of exchanging digital or virtual information, crypto currencies use cryptography for security. Companies can have different cryptocurrencies and now there are more than 6000 different cryptocurrencies traded publicly for goods and services. As a global currency, they hold the same value in every country, but might not be legal in all.
They use block chain open-source technology to create a decentralized public ledger that manages and records transactions. You are the sole owner of your cryptocurrency account because cryptocurrency is not issued by a central authority
To buy cryptocurrency, you need to create an account on Coinbase or on an exchange such as Binance, UniSwap, or HitBTC, to get your own ‘wallet.’ Next, you can transfer real money to buy crypto currencies as investments.
Taking Bitcoin as an example, you must transfer ownership to the receiver’s public key via signed message. A second private key, i.e., a series of passwords, lock each bitcoin, which cannot be accessed without it. As the bitcoin network grows, it gets more secure. Each node connected to the network scrutinizes the validity of the transaction.
Security is only one of the reasons why investors prefer investing in cryptocurrencies. Keep reading to learn more.
Why Do People Prefer Investing in Crypto Currencies?
Often perceived as the currency of the future, supporters of cryptocurrencies believe that their value will increase over time. Many people prefer them since they are not susceptible to inflation as a result of the government’s or central bank’s decision. The block chain technology behind cryptocurrencies allows for a more secure payment system than the traditional means.
Some investors go with the market trends. Since digital currency is going up in value at the preset time, they want to jump on the bandwagon. Moreover, the global economy is drifting towards a more digital payment system, with everything from investments to money transfer adopting a digital eco-system.
All identities are encrypted to maintain legitimate records on a public ledger or a ‘transaction block chain.’ Hence, cryptocurrency is fraud-proof. Digital transactions are kept secure through smart contracts which ensure that the ledger is un-hackable and fraud-proof. Since it is decentralized, neither the bank nor government can have control over your shares.
Lastly, people prefer investing in cryptocurrencies as they are in high-demand for their ease of use and instant transactions. All they need is access to the internet and a smart device to easily make payments and transfer their money.
What is the Value of Investing in Crypto Currencies?
Before any investor decides on which cryptocurrency is a suitable asset for them, it is necessary to have some background knowledge about the most popular ones in the market. Here is some basic information about some of the most significant cryptocurrencies in the market.
As the first and most popular cryptocurrency, Bitcoins were created in a finite quantity, and their scarcity is what gives them their value. Its value has steadily been increasing since September 2020. It surged at above $46,000 per coin after Tesla purchased a stock worth $1.5 billion, on 8th February 2021, in an attempt to accept cryptocurrency payment.
However, it still remains a volatile investment due to the increasing competition and limited adoption. This can increase the overall volatility of an investment portfolio.
Ethereum started out with a value of $3, and has since grown exponentially in value. It differs from Bitcoin in the sense that it operates as a decentralized network over which many cryptocurrency tokens can be issued. The platform has more activity since it has 247 repositories as compared to Bitcoin’s 4 repositories.
Litecoin allows for more efficient money transactions since it has bigger blocks and a lower transaction fee. It aimed to improve upon Bitcoin’s scalability and speed issues. Today, it can be found on almost any exchange. Its processing capacity of 56 transactions per second makes it ideal for small, fast transactions. Lastly, the use of Scrypt makes it a more accessible, power-efficient, and intensive memory algorithm.
Emerging as one of the top ten cryptocurrencies in the world, Bitcoin Cash is the most successful hard fork from Bitcoin’s block chain. To reduce scalability issues, Bitcoin Cash has an increased lock size to allow it to function as a medium for everyday transactions. It’s high value makes it one of the best investments for cryptocurrency.
Crypto platforms provide an easy user interface and fast transaction for crypto currencies to trade on. Here are some lesser known cryptocurrencies that have innovative platforms:
Aave eliminates the need for a middle man as it is run autonomously through the Ethereum block chain. It is an accessible, open-access platform ideal for institutional and retail investors. Funds are deposited into the network’s liquidity pools. An amount of collateral slightly larger than the amount borrowed needs to be locked to allow withdrawal. Aave’s liquidity pool reserve funds help combat market volatility and serve as an insurance to the lenders.
Chainlink uses oracles, i.e., chain sensors that communicate with the block chain. They initiate smart contracts in a reliable way to verify the oracle’s authenticity, deliver the contract to the nodes, and reconcile incorrect data.
SushiSwap had a successful first week right after its release, becoming one of the top five DeFi protocols. However, a sudden sell off resulted in a crash in the cryptocurrency market. Built on the Ethereum block chain, SushiSwap uses liquidity pools.
Is It Worth It Investing In Crypto Currencies?
Investing in cryptocurrencies is a risk because they are notoriously volatile. They started out as a currency of the dark web, and rapid rise in prices attracted traders and investors. Bitcoin started out as a great investment until its value dropped and many people lost their investments. Contrastingly, its value has been steadily increasing since the past year. Ethereum is rapidly gaining popularity, along with the crypto platforms, Aave, Chainlink, and SushiSwap.
Litecoin and Bitcoin Cash are newer, smaller cryptocurrencies that have potential for profits. However, like any other cryptocurrency, they are also speculative investments. Litecoin’s scarcity makes it a safe harbor from inflation and depreciation, increasing the value of investing in crypto currencies for long-term investors.
Hence, whether or not crypto assets are good long-term investments will depend on whether or not they achieve widespread adoption. As a risky investment, you should do your research into it, and get insight from an expert who understands the market trends and the volatility of crypto currencies.