Cryptocurrency is fundamentally decentralized digital money designed to be used over the internet. Bitcoin, which debuted in 2008, was the first cryptocurrency and is still by far the most popular, influential, and well-known.
Since then, Bitcoin and other cryptocurrencies such as Ethereum have grown in popularity as digital alternatives to government-issued money.
While some people are dedicated to cryptocurrency and used as a source of more income, others consider it a scam. It is, however, interesting to know that even the world’s richest man, Elon Musk engages in cryptocurrency too (Dogecoin). He stated in a tweet on November 14th, 2022 that “BTC will make it, but might be a long winter.”
It is important to understand cryptocurrency before indulging as it has its advantages and risks.
What is Cryptocurrency?
A cryptocurrency is a digital currency that was created through the use of encryption algorithms. Because of the use of encryption technologies, cryptocurrencies can function as both a currency and a virtual accounting system. A cryptocurrency wallet is required to use cryptocurrencies. These wallets can be software that is a cloud-based service or software that is installed on your computer or mobile device. Wallets are the tools that you use to store your encryption keys, which confirm your identity and connect to your cryptocurrency.
What are the risks involved in using Cryptocurrency?
Since they are still a relatively new concept, cryptocurrencies have a very unstable market. Cryptocurrencies are typically uninsured and difficult to convert into a kind of real currency because they are not regulated by banks or any other third party (such as US dollars or euros.) Cryptocurrencies can also be hacked like any other intangible technological asset because they are built on technology. Lastly, because you keep your cryptocurrency investments in a digital wallet, if you lose that wallet (or access to it or to backup wallets), your entire cryptocurrency investment is lost.
Benefits of Cryptocurrency?
In contrast to, for instance, the price for transferring money from a digital wallet to a bank account, the transaction cost for cryptocurrencies is minimal to nonexistent. There are no time restrictions on transactions, and both purchases and withdrawals are unlimited. Additionally, anyone can use cryptocurrencies, unlike opening a bank account, which necessitates papers and other documentation.
Even faster than wire transfers are international cryptocurrency transactions. Money is transferred between locations via wire transfers in roughly half a day. Transactions involving cryptocurrencies are completed in a couple of minutes or even seconds.
The current crash in some sectors
Major cryptocurrency events, including the collapse of exchanges or coins, can have a significant impact on cryptocurrency prices. They can also lose value due to rising interest rates, inflation, and other macroeconomic issues that may reduce investors’ levels of confidence when investing in risky alternative assets.
Additionally, when prices drop sharply, as they did in 2022, it may put additional pressure on the market as some investors are compelled to free up funds to pay other debts.
The market was significantly affected by the FTX crash. Along with FTX, other companies FTX did business with and cryptocurrency FTX heavily invested in, including Solana, were also impacted by the crash. BlockFi, a cryptocurrency exchange that had a credit line from FTX.US and was slated to be bought by the company later in the year, stopped allowing withdrawals before declaring bankruptcy a few weeks after FTX.US did.
Following a string of high-profile implosions, major digital assets have given back their gains in the 2022 crypto crash:
- FTX and FTX.US filed for Chapter 11 bankruptcy on November 11, 2022. The aftermath of the crash is still being felt, with BlockFi declaring bankruptcy on November 28.
- The cryptocurrencies TerraUSD and LUNA collapsed in May 2022, and multiple crypto platforms folded as a result.
- Rising interest rates have also aided price decreases.
