Crypto makes it possible to transfer value globally without the need for a central authority, allowing users to send money instantly and securely at low fees. Its ability to circumvent intermediaries also allows for fast and transparent transactions, while reducing fraud and chargebacks.
The crypto market is extremely volatile, with prices rising and falling quickly. This can make it difficult for novice traders to know when to buy and sell. As a result, investors can lose a significant amount of money if they make ill-timed trades.
For investors who choose to invest in cryptocurrency, New York-based wealth advisor Ian Harvey recommends that they diversify their portfolio by buying a number of different coins. He believes this can help cushion the blow if any one particular coin goes to zero, and it can also protect them against the possibility of a crypto bubble burst.
When choosing a cryptocurrency to buy, Harvey advises clients to research the company behind it. Many reputable projects will make their “white papers” publicly available, outlining how they plan to function and distribute tokens. Investors should also check how widely a cryptocurrency is being used, as this can be a good indicator of its popularity and potential for growth. Finally, he says, it’s important to look at who is leading the project: A prominent figure with a proven track record can be a positive sign.
Some cryptocurrencies are created through a process known as mining, where computers solve complex puzzles to verify transaction data on the blockchain. This consumes a lot of energy, and has a negative impact on the environment. Some cryptocurrencies use alternative methods that require less energy, and others are not mined at all.
While the cryptocurrency market is still nascent, it has opened up unique opportunities for people around the world. The digital currencies’ essential borderlessness facilitates free trade, and can empower people in countries with dysfunctional governments to control their own finances.
Its ability to bypass traditional financial systems also allows for unprecedented transparency, enabling users to avoid corrupt or overbearing governments and companies. As a result, it has become popular with activists and dissidents, who can use it to circumvent government sanctions.
Cryptocurrencies can also be used as a store of value, with some people holding them for long periods of time to avoid exposure to inflation or other risks. However, it’s important to note that a large percentage of the current crypto market is held by speculators, who are trading in and out of the assets with the hope of turning a profit.
The volatility of crypto means that it should only make up a small portion of any investment portfolio. For example, a common guideline is to limit crypto purchases to 10% of total investments. For most investors, it’s more important to allocate the bulk of their money to lower-risk assets, such as stocks and bonds.