Why everyone should look into crypto
Crypto is a relatively new asset class that began with the creation of the Bitcoin blockchain in 2009. The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology (think technology-driven, append-only consensus mechanism whereby incentives are implemented so that users and governance are incentivized to cooperate on a transparent and authenticable network to perform tasks and transactions)?is that they don’t have a central authority, payment processor, or company owner.
Instead, crypto networks are peer-to-peer (P2P), meaning people can transact directly with one another. Many of the additional benefits of cryptocurrency stem from their decentralized and P2P nature. Let’s look at some positives of cryptocurrency in this crypto piece.
Benefits of Owning Crypto in 2022
1. Easy Transactions
Crypto transactions can be made easily, at low cost, and in a manner more private than most other transactions. Using a simple smartphone app,?hardware wallet (think Ledger or Trezor), or exchange wallet, anyone can send and receive a variety of cryptocurrencies.
Some?types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be bought with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto. Someone could buy bitcoin at an ATM using cash then send those coins to their phone. For people who lack access to the traditional financial system (see my other article as to why I think crypto may be the solution to bank the 1.7 billion unbanked persons), this may be one of the biggest pros of cryptocurrency.
2. Incredible Security
Because they are based on cryptography and?blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. This might be one of the most certain benefits of cryptocurrency.?
Crypto security is determined in large part by hash rate (think the computing power of the network to ensure that the right transactions and tasks – and not those with a malicious intent – are added to the chain). The higher the hash rate, the more computing power it would take to compromise the network. Bitcoin is the most secure cryptocurrency, having the?highest hash rate?of any network by far.
Using a?crypto exchange?is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or individuals making mistakes. We all remember what happened to Quadriga CX (you can check out this doc on Netflix which, while most probably fictional to a certain extent to appeal the standard user of Netflix, provides an insightful perspective on using crypto exchange) or Mt. Gox.
3. Short Settlement Times and Low Fees
While some people only want to?invest in cryptocurrency?for price appreciation, others might find benefit in the ability to use crypto as a medium of exchange (by the way, the latter is why I’m trying to evangelize crypto).
Bitcoin and?Ether?transactions could cost anywhere from nickels and dimes to several dollars or more (think thousands of dollars when You Labs drops lands on its Otherside metaverse). Other cryptocurrencies like?Litecoin,?XRP, and others can be sent for pennies or less. Payments for most cryptos settle in seconds or minutes. Wire transfers at banks can cost significantly more and often take three to five business days to settle.
4. Exponential Industry Growth
The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes. Being involved now might reasonably be compared to being involved with companies on the leading edge of the internet back in the 1990s and early 2000s.
The total market cap of the cryptocurrency market in 2013 was about US$1.6 billion. By June 2021, it rose to over US$1.4 trillion.
5. Outsized Returns
It’s no secret that Bitcoin has been the best-performing asset of the last 12 years. When it began in 2009, Bitcoin essentially had no value. In the following years it would rise to a fraction of a penny and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.
Some?altcoins?(what we call coins other than Bitcoin the crypto world) have outperformed Bitcoin by wide margins at times, although many of those later saw their prices collapse. Some even had massive crashes (think the recent demise of Terra Labs’ Terra/Luna algorithmic stablecoin). Gains like these might be among the most well-known cryptocurrency benefits. (The losses, on the other hand, may be among the most well-known drawbacks.)
Volatility has characterized prices in the crypto space, which has been one of the key benefits of cryptocurrency for?day traders?and speculators.
6. More Private Transactions
Privacy can be one of the benefits of cryptocurrency, but crypto isn’t as private as some people might think. Blockchains create a public ledger that records all transactions forever (at least, permissionless and open blockchains). While this ledger only shows wallet addresses, if an observer can connect a user’s identity to a specific wallet, then tracking transactions becomes possible.
While it’s worth noting that most crypto transactions are pseudonymous, there are ways to make more anonymous transactions. Coin mixing services group transactions together in a way that makes it hard to pick them apart from one another, confusing outside observers, or users setting up myriads of accounts to potentially drive what we call Sybill attacks. Individuals who run a full node also make their transactions more opaque because observers can’t always tell if the transactions running through the node were sent by the person running the node or by someone else.
Methods like these are for more advanced users and could prove difficult for those new to crypto. So while absolute privacy is really not one of the main positives of cryptocurrency, transactions are still generally more private than using?fiat currency?(i.e., how we name hard currencies such as USD, EUR or UK ￡ in the crypto world) with third-party payment processors.
7. Portfolio Diversification
Cryptocurrency?has become known as a non-correlated asset class – well, at least we thought so for a long time. Historically, crypto markets largely functioned independently of other markets, and their price action tended to be determined by factors other than those affecting stocks, bonds, and commodities. That is no longer the case, though, as institutional investors have started to allocate a significant amount of their investments into crypto, duplicating their traditional investment analysis, and as blockchain has gained widespread traction in the global tech spectrum of things, classifying solutions on which they are based as other tech players.
Source: IMF?
While we tended to think that any asset that has risen by millions of percentage points over just twelve years, as a number of crypto coins have, would not be correlated to anything else, this is no longer true. So if you approach crypto from an investment angle, think about diversifying. A rule of thumb is to allocate 5% of your portfolio into crypto – a combo of coins that have proven their capacity to store value (think Bitcoin), blue chips altcoins (think e.g., Ethereum, Solana, or Cardano) and a basket of other altcoins (some may say shitcoins) on which you’re bullish because of their value proposition and your tactical and competitive analysis. This is not financial advice in any case, only coming from the experience of a single crypto user, i.e., the lonely clown Echotraffic.
8. Inflation Hedge
Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, are thought to be?good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money, increasing the supply, things that are more scarce tend to appreciate in value. Beware, this has proven not to be so true recently, as those currencies have actually followed a downward path in a high-inflation environment – again, most probably because crypto investors have changed and its adoption has reached other levels.
Source: Ally Invest, Yahoo Finance?
In theory, with more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up, though. Additionally, the Bitcoin protocol, for example, is also designed to?keep those coins scarce?regardless of what happens with monetary policy.
9. Cross-Border Payments
Cryptocurrencies have no regard for national borders. An individual in one country can send coins to someone in a different country without any added difficulty. With traditional financial services, getting funds across international borders can take a long time and come with hefty fees. In some cases, doing so might not even be possible due to regulations, sanctions, or tensions between specific countries.
10. A More Inclusive Financial System
That’s one of my bigger bet on crypto (again, see one of my previous pieces). Some of the benefits of cryptocurrency extend to people who don’t have access to the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate.
People don’t have to have permission from any financial authority or government to use the crypto ecosystem. (Though it’s worth noting that Bitcoin?mining?is banned in China.) They also don’t necessarily need to have a bank account. There are billions of people today who are “unbanked,” meaning they have no access to the financial system, including bank accounts. With crypto, all these people need is a smartphone, internet access (and in some cases, not even – just a phone number operating on a telecom network), and they can essentially become their own bank.
11. Transactional Freedom
One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction freer and censorship-resistant.
Banks or other payment processors can choose to cut off services to anyone for any reason – what we call “denial of service”, a cornerstone value at the backbone of the rationale of the existence of crypto. This can make things difficult for some journalists, political dissidents, or other individuals working in nations with oppressive government regimes (hello, Ukraine, Russia or Venezuela). Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them. That being said, policies pertaining to anti-money-laundering and terrorism financing should clearly be upgraded to encompass the whole crypto space, even if empirical evidence has shown that less that 5% of crypto transactions have such an intent.
12. 24/7 Markets
Stock markets are only open on weekdays during the regular business hours of traditional finance exchanges. During nights, weekends, and on holidays, most traditional financial markets are not open for business. That’s why you can easily catch a crypto investor in the crowd – that’s the hooded guy or lady connected to crypto exchange to check trading charts on weekends. Usually, the dark rings under the eyes are a good indicator.
Crypto markets, on the other hand, trade 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.
The Takeaway
The above are just a few of the most important advantages of cryptocurrency. Of course, there are potential flaws as well — its volatility being a major downside, it lack of proper regulation being another one, and its complexity (think UX, UI and custody) being a nightmare. As with anything, those interested in buying, selling, and trading crypto would be wise to do their research before getting involved in the crypto market. As we say in the community, DYOR (which stands for Do Your Own Research).
Until policy-makers understand why crypto should be supported, maybe constrained, most certainly more regulated, I will keep making clowns.
Source: SoFi
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