Cryptocurrency is a recent sell for investors. Some consider it as a high-risk venture wherein the investment is made on a ‘gamble’ while others consider it as another vehicle of asset allocation. If you are a new entrant in this crypto field, it is good to be aware of some risks and that you should do your research well before putting money into this virtual world.

What Is Cryptocurrency?

Cryptocurrencies are decentralized and are independent of any kind of government or company monopolies. While cryptocurrencies are not issued by a central government similar to USD, they are not issued by any government. They rely on the various users using the networks rather than central servers. Otherwise known as cryptocoins or cybercurrencies, the cryptocurrencies are encrypted by encryption through blockchain.

One of the best ways to use crypto is to purchase items on e-commerce websites although this more restricted than the use of fiat currencies. How crypto works is that when you are making a payment through crypto, the blockchain software is authenticated by a network of several computers. When the transaction is valid, it is executed and saved in the blockchain, a decentralized ledger available for everyone to view.

Among the common trend is for people to buy cryptocurrencies as an investment with the focus on the expectation that it would increase in value over time like stocks or gold.

Types of Cryptocurrencies

Bitcoin (BTC)

Bitcoin was launched in 2009 by Satoshi Nakamoto, which is the first and largest crypto by market cap. Bitcoin uses a proof-of-work algorithm based on the puzzle-solving process performed by miners to verify all transactions. It is worth mentioning that the value of this crypto increased by 11,900% during just 8 years – Bitcoin started at $500 in May 2016 and $60,000 in May 2024.

Ethereum (ETH)

Launched in 2015, Ethereum is the leading altcoin and the second-largest cryptocurrency by market cap. Unlike Bitcoin, which aims to be a decentralized currency, Ethereum functions as a computer network that allows people to run decentralized applications (DApps) and set up smart contracts. Recent Ethereum ETF news has sparked interest among investors.

Tether (USDT)

Tether is a stablecoin and its price is traditionally linked to another asset or asset type, usually a fiat currency – for example, USD. Tether manages to keep its price at the level of $ 1 thanks to having equal $ 1 reserve. This stability makes Tether the default choice for cautious crypto investors who are wary of storing other cryptocurrencies.

Solana (SOL)

Solana has dApps and smart contracts support for decentralized finance apps. It is designed in such a way that it borrows the concept of proof of stake and proof of history to make the currency to be credible and reduce transaction time. The current native token is SOL which comprises the Solana blockchain transactions.

Binance Coin (BNB)

Binance coin first launched in 2017 is a token or a cryptocurrency that can be used for trading and fees on the Binance exchange which is one of the largest cryptocurrency exchange in the world. BNB has a series of applications, as a trading and payment intermediary and a travel booking system. Binance remains an important focus in news and updates about the best crypto exchanges.

Pros and Cons of Investing in Cryptocurrency

Pros

High Returns: The bitcoin and the ethereum coins have recorded tremendous growth within a few years.

Decentralization: Cryptocurrencies have no central body in a sense that they are not centralized.

Accessibility: Various platforms accept the purchase and sell of the cryptos around the clock.

Cons

Volatility: The recent volatility of Bitcoin and other cryptocurrencies is well documented.

Security Risks: Investors may be taken advantage of the scam or fraud.

Regulatory Changes: Some countries have a way of discouraging trading of virtual currencies by introducing various economic policies to reduce their worth.

“Some of the most important advice that Stephen Rischall, CFP Partner at wealth management firm Navalign gives on cryptocurrency is volatility. One needs to be prepared to see ups and downs in its prices and invest only up to an amount than you can afford to lose.” Stephen Rischall, CFP Partner at wealth management firm Navalign.

However, cryptocurrency trading brings in one of the highest profits, but at the same time presents high risks. Investors should be careful not only because there is high potential for big gains but also due to the big losses. Check the latest updates on bitcoin ETF and other things relatedly to avoid the risk of loss when making a choice.