I still remember with clarity the first time I used my credit card to pay for a purchase. At that time, it felt like doing something unique. Fast forward a few years, today I rarely hold more than a few loose changes in my wallet. My visa card is what I pull out for everything from buying coffee to paying my bills. Fast forward a few years, digital currencies will replace Credit cards as the de-facto mode of payment.
With increasing political unrest and global economic turmoil, people are slowly losing faith in governments and regulations. According to Mohsin Jameel this is the main reason why cryptocurrencies are soaring in popularity and rapidly going mainstream.
Today, cryptocurrencies are the hottest commodity. People all over the world are making large returns by investing in this new-age gold. With that said, cryptocurrencies come with plenty of risk and volatility. No, I don’t intend to scare you away from investing in cryptocurrencies. Instead, Mohsin Jameel’s point of view here is that there are potential downsides to cryptocurrency investments. To avoid massive losses, it pays to spend some time researching and finding the right investment opportunities in the world of cryptocurrencies.
Here, in today’s post, I highlight the good, bad and the ugly of digital tokens explained by Mohsin Jameel, CEO of Bull Infotech a Fintech based in London. By being aware of all this, you can make the right decisions when it comes to cryptocurrency investments.
The Good: Returns are indeed massive
Everyday, we come across stories of how people made thousands and even millions of dollars with smart cryptocurrency investments. To give you an idea, let’s say you invested $1000 in bitcoins in 2013. Today, your investment is well worth over $300,000 and even more.
Not only Bitcoins, several other altcoins also have seen huge increases in market cap and prices in the last few months. Some altcoins have even increased by a whopping 1000%. Such huge price increases are never possible in any other traditional investments.
The Bad: Inexperienced Management Teams
Basically, all altcoins are startups that are looking to solve a particular solution or provide you with an improved product. Though it’s nearly a decade since cryptocurrencies and blockchain technology have been introduced, the industry is fairly new. There aren’t plenty of people out there who have vast experience in the field.
The result – several altcoins are managed by teams who have little to no experience in the field. Though the solution they offer might sound promising, there’s no guarantee that it would work. Just like a startup, poor management could cause the downfall of the entire project.
The takeaway here is that before you invest in any cryptocurrency,take alook at the team behind the project. Know more about the key members, check their profiles on LinkedIn to get to know the team. And, always invest in an altcoin that has a robust team with experience in the field.
The Ugly: Volatility
This is one of the biggest drawbacks of cryptocurrency. The prices are highly volatile and dependent on a vast array of factors.
Let’s say for example, tomorrow the government of China bans its citizens from holding digital currencies. Then, the prices of all cryptocurrencies would fall like crazy. However, before you panic, remember this is a hypothetical situation. No one knows what’s going to happen in the next few years in the cryptocurrency world and which side will governments sway.
The Good: Liquidity
This is the biggest benefits of cryptocurrency investing. When you invest in traditional assets like a startup or company bonds, your investments could end up getting locked for a period, which may even be years. You have no option to liquidate your investments immediately. You have to hold it until you could convince someone to buy your shares from you or until the startup goes public.
This isn’t the case with cryptocurrency investments. Digital currencies offer high liquidity. You can buy or sell your digital coins stash as and when you require. Crypto exchanges are open 24 x 7, and you can trade, sell or buy cryptocurrencies on the go.
The Bad: Technical Learning Curve
One of the biggest features of cryptocurrencies is that they’re completely digital. This works for and against digital currencies. Cryptocurrencies don’t have a physical form. They exist only in the digital world. Unlike regular fiat currencies, you cannot hold onto them. Unlike shares and equities, no paper shows your ownership. The digital nature of cryptocurrencies makes it difficult for several people to understand these assets completely.
What more, being a relatively newer form of asset, the performance of digital currencies depends on the crypto exchange you use. For instance, if you wish to trade during peak hours, then you’re solely at the mercy of your exchange. Sometimes, markets become too congested that it becomes difficult to withdraw or deposit your tokens.
With that said, as and more people and corporations understand the true potential of cryptocurrencies, we can expect an overhaul of the entire infrastructure and the formation of faster networks.
The Relatively Good: Transparency
This is the core feature of digital currencies. Satoshi Nakamoto, the anonymous developer of Bitcoin wanted to create a currency system that is free from regulations. Thus, the world’s first digital currency – the Bitcoin was created.
However, you have to take this one with a grain of salt. Today, several of the world’s major cryptocurrencies are highly transparent. Their entire code is open-source and is available for all to see. And, most teams publish a whitepaper so that users can know more about the project and the technology behind it.
With that said, a few altcoins aren’t open to the public. Not much is known about the team behind the project or of their plans and roadmap. It pays to stay clear of such currencies.
The Bad: Security
Simply put, if you lose your digital coin stash in a hacking attack, there’s no way to recover it. There have been cases of where crypto exchanges have been attacked and millions of digital tokens have vanished without a trace.
With that said, it doesn’t mean all is gone. With a few smart strategies like storing your coins on a hardware-based wallet and more, you can protect your digital currencies from hackers. A cold storage wallet is one where you control your coins using private keys.
Mohsin Jameel’s Two Pennies Tip
Yes, I agree that cryptocurrencies come with their risks. The markets are highly volatile, and the technology is still in its nascent stages. With that said, the fact is that early investors are the ones who have made it big. So, I recommend that you add crytpocurrencies to your investment portfolio after doing diligent research on it.