The following statements do not constitute investment advice or any other advice on 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 buy or sell financial instruments and financial products or an invitation to submit such an offer and to buy or sell a digital asset. Cryptocurrencies are subject to strong fluctuations in value. A decline in value or total loss is possible at any time. Loss of access to data and passwords can also lead to complete loss.
Cryptocurrencies have the ability to transform the financial world as we know it, and even challenge the very existence of traditional financial institutions. But what are the pros and cons of cryptocurrency? How do you decide which one to invest in, or even whether to invest at all?
If hokk finance seem complicated to you to understand, don’t worry. We’re here to explain their actual pros and cons so you can make informed decisions. And if those concepts are still a little fuzzy, check out our guide to getting started with cryptocurrency .
5 advantages of cryptocurrency
Although crypto currency prices are a relatively recent invention (Bitcoin, for example, was launched in 2009), they are already well established, and have been for a long time, with all the advantages offered. Between promises of big earnings and ultra-secure 24/7 transactions, the world of cryptocurrencies offers a lot of advantages – if you know how to take advantage of them.
1. High Risks…and High Winning Potential
More than 10,000 cryptocurrencies are present on the market today and each has its very specific characteristics. However, they all have one thing in common: their tendency to experience sudden increases (and decreases) in value. Prices are determined primarily by the supply of assets from “Bitcoin miners”, and the demand for those assets by buyers. This dynamic of supply and demand can generate high gains. The price of Ethereum, for example, almost doubled between July 2021 and December 2021. Investors who were able to commit at the right time must have been congratulated.
2. The blockchain technology behind cryptocurrencies offers maximum security
Some of the major advantages of cryptocurrencies are not related to the currency itself, but to the infrastructure that supports them. 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 since the blockchain is stored in a decentralized way on multiple computers, no hacker can access the whole chain at once: when they are entered, the information is secure for good.
3. Farewell 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 are giving your trust to one of these intermediaries, and with the recession of the early 2000s, many people wondered if it was finally a good idea. 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 round-the-clock transaction logging, you don’t have 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 trade outside of bank hours…but we are probably still a long way from that. For investors who are attentive around the clock, cryptocurrency could thus be the best way to generate income outside normal working hours.
5. Cryptocurrencies could allow investors to counter inflation
Cryptocurrencies are not tied to a single currency or economy, so their price reflects 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 get out of control, and therefore, no risk of inflation. Some currencies (like Bitcoin) have an overall cap and others (like Ethereum) have an annual cap. But in any case, this approach avoids inflation problems.
5 disadvantages of cryptocurrency
All this sounds fabulous, but are the prospects offered by cryptocurrencies really an El Dorado? Let’s see some of the disadvantages. Some can be solved easily, others not so much. But it is always useful to be aware of it.
1. Understanding cryptocurrencies takes time and effort
You may need to spend a lot of time before understanding this jargon and its universe. If you are not from the digital generation, the concept of cryptocurrency (not to mention blockchain) may seem abstract to you. Also, investing in something you don’t really know is a risk in itself. There are plenty of resources online to help (including N26’s blog series on cryptocurrency). However, it is still recommended to thoroughly study the advantages and disadvantages of cryptocurrencies.
2. Cryptocurrencies can be an extremely volatile investment
The price of a cryptocurrency can experience a sudden and dizzying rise (with the 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 affect the value of assets, which is one of the major drawbacks of cryptocurrency.
3. Cryptocurrencies have not (yet) proven to be a long-term investment
Cryptocurrencies are now widely known and growing in popularity. However, it is good to remember that they were born barely 10 years ago. It was after 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 depositories for millennia. But cryptocurrencies? No one really knows what the future holds for them. It is therefore necessary to be courageous to venture into these unknown lands as an investor.
4. Cryptocurrencies have real scalability issues
You might think digital currency trading happens at lightning speed. It does, but up to a 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 made. This can create quite a frustrating experience for participants in transactions, not to mention the potential financial losses that come with it.
5. Cryptocurrency novices are more vulnerable to security attacks
Cryptocurrencies may not have the inherent risks of third-party intermediaries, but that doesn’t take away any security risk. 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 attempt to gain control of your assets through malicious means. All seasoned investors are very aware of this, but novice investors are more likely to fall victim to these traps.
What is the best cryptocurrency to invest?
No cryptocurrency stands out more than all the others. It’s a matter of personal choice. However, we can give you some advice before you commit. Consider your personal risk tolerance: will you be able to afford to lose a significant portion of your investment if the value of your assets plummets? Do you use these assets only to generate profits, or do you hope to be able to use them to make purchases? Is it just about money, or are you looking to invest in assets with greater social or environmental impact? The easy way out 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, which ensures that there will be no inflation, and its constantly headline-grabbing prices reassure investors of the fruitful benefits of their investments. Bitcoin is the globally accepted cryptocurrency for making payments. Of course, there are also disadvantages. Bitcoin’s blockchain infrastructure starts to slow down when it exceeds the rate of 7 transactions per second (a real problem considering that Visa is processing around 1,700 transactions per second!). Furthermore, 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 articleWhat 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. As with everything, trading cryptocurrencies comes with its own set of rewards and risks, but N26 is here to help. Whether it’s paying bitcoins for your daily purchases or using another asset to build your investment portfolio, we can show you all the pros and cons of cryptocurrency.
Cryptocurrencies with N26
N26 has an array of resources to help you navigate the latest developments in the world of finance. With the beginners guide What is cryptocurrency? and the information found in the article What is a crypto wallet? , N26 accompanies you at every step and helps you make informed financial decisions thanks to reliable information.