decade. It’s virtually impossible to read a newspaper, browse financial blogs or scroll through social media without coming across stories, articles and adverts for cryptocurrencies. In this article, we’ll answer common questions and offer insight into the future.
What is cryptocurrency?
A cryptocurrency is a virtual form of currency. These digital currencies are secured by cryptography, meaning producing counterfeit goods or double-spending is impossible. In addition, most cryptocurrencies are decentralised networks. This is a crucial feature, meaning that money is not issued or controlled by central authorities or organisations. Decentralised networks are based on blockchain technology. A blockchain is a system known as a ledger, which records information, including transactions, in a way that is impossible to hack, modify or cheat. The ledger of transactions is distributed across the computer systems that make up the blockchain network.
Cryptocurrencies enable people to buy assets or products without a third-party intermediary. You can make secure, safe online payments via sites that allow crypto payments. In addition, cryptocurrencies can be mined or purchased through dedicated cryptocurrency exchanges.
Cryptocurrencies are becoming more commonplace, and many retailers and online sites accept cryptocurrency payments. However, many people know about them because they have read about trading or taken the plunge and invested to make a profit.
The most common types of cryptocurrencies include:
- US Dollar Coin
How prevalent are cryptocurrencies?
Studies suggest that global cryptocurrency ownership rates reached 3.9% in 2021, equating to more than 300 million users worldwide. Cryptocurrencies are becoming more popular, but they have yet to be mainstream. Most people do not own cryptocurrencies, and most retailers and sites don’t yet accept crypto payments. In 2021, over 18,000 businesses took cryptocurrency payments. This figure is expected to rise significantly in the next decade (source).
Cryptocurrencies are more prevalent in some parts of the world than others. In 2020, 13% of Americans traded in cryptocurrency. During the same year, 24% of US adults invested in stocks (source). The countries with the heaviest use in 2021 include:
- South Africa
What are the pros and cons of cryptocurrencies?
There are advantages and disadvantages to both using and investing in cryptocurrencies. Here are some pros and cons to consider:
- Secure payments with no risk of fraud or counterfeiting
- Personal information security and privacy with no risk of leaks
- Potential to enjoy significant profits
- Access to a transparent banking system via decentralised networks
- Round-the-clock trading options
- Potential to reduce investment risks linked to inflation, as cryptocurrencies are not associated with traditional currencies or single economies
- Immediate ownership transfer
- Increasingly commonplace: cryptocurrencies are more widely accepted than ever
- Potential to lose a lot of money: investing in cryptocurrency can be high risk as the markets are volatile and unpredictable
- Cryptocurrencies can be more challenging to understand than traditional currencies, meaning that it can take time to get your head around investing in digital currencies and understanding how the market works.
The most significant disadvantage of buying cryptocurrencies as an investment is also one of the potential advantages of this type of asset. The market can be volatile, and prices can rise and fall quickly. This means that it is likely to increase the value of your investment substantially, but it also means that there is a genuine risk of losing a lot of money.
If you are new to cryptocurrency or have limited experience, it’s best to monitor the markets, understand what factors influence prices and start small. It can also be beneficial to avoid significant investments if you are unwilling to hang onto your currencies for a considerable period. There are often peaks and troughs.
What does the future hold for cryptocurrencies?
2021 was a landmark year for cryptocurrencies. Bitcoin hit record highs and recorded dramatic price drops, Ethereum’s value rocketed at points and global interest in cryptocurrency peaked. As a result, more and more people are considering investing in cryptocurrency, and even those who might not want to part with any cash are intrigued by the concepts of trading and using digital currencies.
It’s impossible to predict what will happen in the future, and no investor or financial expert has a crystal ball. Still, there are indications that changes could be on the way and suggestions about how the future will pan out for investors and cryptocurrency users. Here are some potential scenarios to consider:
- Enhanced regulation: bodies and authorities, particularly in the US, have talked about improving cryptocurrency regulation for a long time to protect investors and reduce the risks of cybercrime. Expect to see tighter regulation in the future.
- New ways to invest: in the years to come, there could be new ways to invest following the introduction of the Bitcoin ETF on the New York Stock Exchange. The BITO Bitcoin EFT allows traders to buy Bitcoin directly from their already-used brokerages.
- Wider adoption of cryptocurrencies: cryptocurrencies are becoming accepted more broadly. This trend is set to continue in the years ahead. Leading retailers and big names getting involved are likely to trigger a domino effect.
Cryptocurrencies are digital currencies which are secured through cryptography. Investing has become increasingly popular, and cryptocurrencies are now traded and used by more people than ever. There are pros and cons of investing in cryptocurrencies, most notably, the potential to make or lose a lot of money. As more and more people choose to buy cryptocurrencies, the future of shopping, investing and transferring money may look very different.