Cryptocurrency: Investments, Use Cases & Benefits of this Emerging Technology

Apart from traditional investment opportunities such as stock markets, cryptocurrency has grown in popularity immensely over the past couple of years. It’s important to know how to navigate this new space and what possible investments, use cases, or benefits cryptocurrency can provide. 

What is cryptocurrency?

Cryptocurrency is a form of digital currency that operates on a blockchain. A blockchain is a public database storing all transaction history and wallet addresses. This means anyone can view all users’ activities, excluding privacy blockchains that hide transactions. 

There are a few significant differences between crypto and fiat money, which is what we use in our everyday lives. The main one is that using cryptocurrency enables you to be in direct control of your funds, whereas using a payment provider requires a middleman and, in some cases, authorization to release or access funds. 

The absence of the middleman often creates certain challenges in the decentralized finance world, such as using crypto for money laundering or violating consumer protection obligations. As observed through up-to-date crypto news, governments worldwide constantly shift regulations around digital assets, addressing capital flows via crypto, the legitimacy of crypto service providers, and risk management. 

Another part of cryptocurrency is non-fungible tokens (NFTs). These are digital collectibles created on the blockchain. NFTs can serve different purposes but usually belong to a larger project, web3 game, pieces of art, or something else entirely.

Investment opportunities 

Cryptocurrency (and NFTs) are great investment opportunities. Bitcoin is the first and largest in the crypto market, but many ‘alt coins’ (with much lower market capitalization) are available for purchase. However, it is worth noting that the crypto market is much more volatile than other financial markets, such as stocks. 

Here are some ways to identify possible scams in the web3 space:

• Anonymous team: while this isn’t always the case, projects with anonymous teams (no identifying information) are much riskier than others.
• Inorganic social media engagement: if an account is seemingly new and/or receiving what appears to be bot engagement, this is a sign that the project may not have a legitimate community. 
• Sounds good to be true: the most common scam is when ‘social media influencers’ state that you can send your tokens to an address and then receive double or triple the amount back. Another variation of this is when a project promises a 100x return simply by staking your tokens. If something sounds too good to be true, it usually is.

There are two main ways to purchase a cryptocurrency that has already launched: via a centralized exchange (CEX) or a decentralized exchange (DEX). Governments regulate centralized exchanges and require KYC (identity verification) to trade on them. Decentralized exchanges, on the other hand, can be connected to a wallet and require no identification.

Macroeconomic trends, like a recession, also affect crypto prices. Always make sure to do due diligence before making any investment. This applies to crypto since anyone can create a cryptocurrency token or project. 

Using cold wallets to store most of your assets, such as a Ledger or Trezor wallet, is also recommended. Cold wallets are physical USB sticks that can store cryptocurrency assets, thus being more secure than keeping your tokens on a hot wallet or centralized exchange (CEX).

Use Cases

More individuals and companies have begun to accept cryptocurrency as a payment method. Crypto transactions tend to be fast and simple. The only downside is that since there is no middleman, once a user makes a transaction, there is no way to revert or refund. To convert crypto back to fiat money, a user has to withdraw their assets via a centralized exchange to their bank. This is the most secure method, but other less conventional means exist, such as peer-to-peer conversions. 

A real-world use case for NFTs is ownership verification. Since an NFT collection has a unique contract address, it is impossible to fake ownership of a certain NFT (similar to ‘forgery’ in the real world). This is why NFTs have started to become more popular in the ticketing space.

What are the benefits of cryptocurrency?

As mentioned earlier, all cryptocurrency transactions are done via a public blockchain. This allows for total transparency since users can see the exact assets a wallet has and past transactions the wallet has made. Cryptocurrency is cost-effective and fast, depending on which payment token is used. There are even some feeless tokens that have zero additional costs. However, most tokens have a small ‘gas fee’, which is used to pay the computational cost of the transaction.

Cryptocurrency also uses smart contracts, a special code that decentralized applications (dApps), bots, and other web3 initiatives. When made open-source or shared publicly, a smart contract’s code can be viewed by anyone. This way, no malicious code can be implemented unknowingly. Many web3 projects utilize what is known as a ‘multisig’, which is a shared wallet address that requires approval from multiple users for a transaction to be made. This is good for securing a lot of funds.

In conclusion, whether you are cynical or curious about it, cryptocurrency and blockchain technology have come to stay. You may do well to explore this emerging innovation’s opportunities and use cases.