Cryptocurrency is becoming better-known and more popular throughout the entire world. However, being relatively new, you may not be familiar with it or why it’s even a big deal. It’s time to learn how cryptocurrency will make the world a better place.
Basically, cryptocurrency is electronic money stored in e-wallets or computer files. Also, cryptocurreny is transferred and tracked by using blockchain technology. This technology tracks every update or transfer chronologically. Then, it stores the information cryptically so that anyone can see it. However, existing data cannot be changed.
Bitcoin is one of the most well-known cryptocurrencies out there. Additionally, there are thousands of different cryptocurrencies available. Not all cryptocurrencies serve the same purpose. While some are for general use, others solve specific problems and/or serve specific industries.
Cryptocurrencies are digital assets that use cryptography, an encryption technique, for security. Cryptocurrencies are primarily used to buy and sell goods and services, though some newer cryptocurrencies also function to provide a set of rules or obligations for its holders—something we will discuss later.
They possess no intrinsic value in that they are not redeemable for another commodity, such as gold. Unlike traditional currency, they are not issued by a central authority and are not considered legal tender.
Impact on Global Investments
Cryptocurrencies have many benefits when it comes to frictionless transactions and inflation control, but many investors are adding these currencies as assets to their diversified portfolios.
In particular, the noncorrelated nature of the market makes cryptocurrencies a potential hedge against risk, similar to precious metals like gold. Many cryptocurrency exchange-traded products (ETFs and ETNs) have arisen for this very reason.
On the other hand, some experts fear that a cryptocurrency crash could have an adverse impact on the wider market, similar to how mortgage-backed securities sparked a wider global financial crisis.
It’s worth noting that the total market capitalization of all cryptocurrencies, which is between one and two trillion dollars as of now, is still less than that of some large public companies, such as Meta (formerly Facebook) or Amazon.2 Yet, cryptocurrencies as an asset class is a new and dynamic prospect that can go in either direction.
In the end, many investors view cryptocurrencies as either a vehicle for speculation or a hedge against inflation, but the size of the market doesn’t represent a systemic risk as of 2021.
So, what are the advantages of adopting cryptocurrencies?
For consumers, transferring money becomes a lot cheaper and in certain instances, safer as well. Transaction costs of cryptocurrencies are much lower than fees levied by most banks. Additionally, transaction values cannot be replicated.
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