Cryptocurrencies have undergone a meteoric rise to prominence and captured the attention of people all over the world. Every day, more and more people are starting to invest in the many virtual currencies available and delving deeper into the wondrous world of crypto.

Many of us are well aware of the term “cryptocurrency”, but may not have a firm understanding of what it exactly is. To provide a simple definition, a cryptocurrency is a digital asset designed to work as a medium of exchange. To do this, it uses cryptography that enables secure transactions, control over the creation of units, and verification of the transfer of assets.

Today’s most valuable and well-known cryptocurrency, Bitcoin, came out in 2009. But what sparked it to become a global phenomenon and pave the way for a plethora of other cryptocurrencies to appear in the market?

Before diving headfirst into this, it is important to further explain what cryptocurrencies are in order to develop a broader understanding of the industry and how these virtual currencies function.

Many of us have some idea of what the prices of various cryptocurrencies are through reading the news or via apps on their phones. However, despite their popularity, a good portion of the world’s population has little understanding of how cryptocurrencies function.

Essentially, cryptocurrencies work by utilizing a technology called blockchain. It is a relatively new form of technology that uses a distributed ledger system to record transactions. Blockchain is known for its security since it relies on cryptography to ensure that the data recorded is accurate and that no single computer can be corrupted. The blockchain is a public database that records every transaction ever made on it. This makes it incredibly difficult to alter and impossible to delete once it has been created. To put it into perspective, it’s like a giant spreadsheet where everyone can see what everyone else owns, but no one person can change the information without being detected.

Unlike fiat currencies, cryptocurrencies are not controlled by any central authority. They are unregulated and, while they are not backed by a government, do have value. On the flip side, though, unlike fiat currencies, they are highly volatile. Investors prioritize making quick gains, meaning they are often concerned with wealth creation when purchasing cryptocurrency.

Crypto coins also do not need an intermediary to verify a transaction, further differentiating it from fiat currencies. They use blockchain technology to ensure that every transaction is permanent. This, in turn, enhances the security of each exchange.

Bitcoin is considered to be the original cryptocurrency, hence why it’s so popular and has people scrambling to invest in it while it surges in value. But, while Bitcoin may be the face of the cryptocurrency industry, there are almost 7,000 different cryptocurrencies out there as of October 2021. But, why exactly are so many new cryptocurrencies popping up on the market and what does this mean going forward?

Simply explained, all new cryptocurrencies aim to dethrone Bitcoin as the world’s leading cryptocurrency, but none have been able to do so thus far. However, it is important to keep in mind that not all cryptocurrencies are based on Bitcoin, and each of them has their own distinguishing features and functionality. Every new cryptocurrency aims to be better than the existing ones by working on the flaws and limitations of the current crypto market.

But, as mentioned, Bitcoin still sits atop the summit of the cryptocurrency sector even though many other virtual currencies have found similar levels of success and established themselves as leaders in the space as well. Ethereum, Binance Coin, Cardano, Tether and Solana have all skyrocketed in value and have seen an exponential spike in demand due to an increasing number of people investing or mining these cryptocurrencies.

It is obvious that the exigency for cryptocurrencies won’t be extinguished anytime soon, but what are the reasons behind the surge in investors and miners? Let’s take a look.

• It is hard to ignore the amount of profit people stand to make from cryptocurrencies. Since many of those have seen massive returns on their investments, others are naturally flocking to buy virtual currencies in the hopes of doing the same.


• Many people believe cryptocurrencies like Bitcoin and Ethereum will be the currency of the future and are rushing to purchase as much as possible before prices continue to go up.


• Investors also like the idea that cryptocurrencies remove central banks and governments from managing the currency supply, since they believe these institutions tend to reduce the value of money over time through inflation.


• The technology behind cryptocurrencies and blockchain has intrigued people for all the right reasons as they see it as a decentralized processing and recording method that is more secure than the conventional technology being used right now.


• It is also hard to overlook the fact that there are very few fees associated with cryptocurrencies. High fees often apply when using other types of online payment options, meaning people benefit financially from the lower fees associated with virtual currencies.

Cryptocurrencies are an enticing prospect for many people looking to make investments at this moment in time. There are many potential upsides that come with it, but it is also important to keep the risks in mind as cryptocurrencies are volatile and unregulated unlike fiat currencies.

So, what exactly are the pros and cons associated with investing in cryptocurrencies like Bitcoin?

Pros

• Big profit margins – many people who invested in Bitcoin or Ethereum early on when the price was extremely low have reaped the benefits as they have made huge returns on their investment.


• Minimal security risks - Cryptocurrencies use cryptography to secure transactions and control access to funds. They are considered safe because they are decentralized databases that cannot be controlled or manipulated by a central authority.


• Not affected by inflation - Cryptocurrencies are deflationary, meaning they do not create new money when they are transferred from one person to another. This means the total number of virtual currencies, such as bitcoins, in circulation remains constant.

Cons

• Highly volatile - Cryptocurrencies such as Bitcoin and Ethereum are extremely volatile due to high demand and limited supply. The price of these virtual currencies fluctuate daily and weekly, making them unsuitable for everyday purchases.


• Hacking threat - Cryptocurrencies are vulnerable to hacking because they use public-key cryptography which is based on mathematical principles. The public key is used for encryption purposes, while the private key is used to decrypt the data. However, hackers can easily compromise the private keys, meaning there is a possibility that people can lose all the cryptocurrency they have purchased.


• No refunds - Cryptocurrencies cannot be refunded, simply because they are digital currencies that are stored in a computer system. The owner of the computer has the key to access the currency, which means that the money cannot be taken back from them. This loophole can thus be used to cheat people out of the cryptocurrency they have invested in.

It is abundantly clear that there are many advantages and disadvantages of investing in cryptocurrency right now. The hefty profits and solid security measures will convince many to take the plunge, but it is also necessary to be aware that cryptocurrencies are highly volatile. This makes it difficult to predict how much they will be worth in the future. As such, it is better to invest small amounts at a time rather than large amounts all at once. It also means that there is no guarantee of any returns on your investment.

The best way to buy cryptocurrency is through traditional brokers or cryptocurrency exchanges. But what’s the difference between the two?

Cryptocurrency brokers are individuals or companies that trade cryptocurrencies for other currencies, commodities, stocks, ETFs, and bonds. They provide liquidity, and they also act as market makers. Brokers do not issue new coins, instead they make markets for existing coins. The best known broker for trading Bitcoin is Coinbase, which offers both fiat currency and crypto trading. However, we at Blitz Broker are fostering a global network of localized crypto brokers who offer liquidity services and more to areas which struggle to gain proper access to crypto exchanges or onramps.

Cryptocurrency exchanges allow users to trade one currency for another. There are two types of cryptocurrency exchange platforms - centralized and decentralized. The centralized platform holds all your private keys and provides you with access to your funds. The decentralized platform means that no one single entity holds your keys and they are open source meaning anyone can audit them.

There are hundreds of exchanges available all over the world, such as Kraken, eToro and Binance. Most exchanges will allow you to sign up using a bank transfer. This means you won’t have to worry about entering any personal information and can just follow the instructions. It’s important to note that many banks charge fees for transfers out of the country, so it might be worth signing up with one of the bigger providers first to see if they offer cheaper rates.

There has been a lot of talk surrounding what the future holds for cryptocurrency. Much of the speculation has been around cryptocurrency regulation, with lawmakers in the United States already considering creating laws to make virtual currencies safer for investors. However, while the United States remains open-minded about cryptocurrencies, China has made its stance clear by banning all cryptocurrency transactions in the country.

It also remains to be seen whether other nations will follow in El Salvador’s footsteps and make Bitcoin legal tender. Although cryptocurrencies are becoming an increasingly accepted form of payment, no country has gone as far as El Salvador, which will likely be seen as a testing ground that provides an indication of whether adopting cryptocurrency as legal tender is a move worth pursuing and implementing.

While it is difficult to say what the cryptocurrency industry will look like in the foreseeable future, what is certain is that virtual currencies are not a temporary craze and are definitely here to stay. Demand remains strong and there are new investors entering the market every single day.

Ready to take the leap into the world of cryptocurrency? Join Blitz Broker’s program today and get the knowledge and skills necessary to become a global certified crypto broker.