Cryptocurrency: Is It A Safe And Reliable Form Of Investment?

Dealing with cryptocurrency doesn't always have to be risky if the trader thoroughly understands the market

Cryptocurrency: Is It A Safe And Reliable Form Of Investment?
Sathvik Vishwanath 17 February 2021

Over the last few years, technology has brought about a paradigm shift in the way we work, communicate, shop, and pay for our purchases. With the Government of India's Digital India’ initiative, digital transactions or payments have become more prominent than ever. For a long time now, people have been well-acquainted with popular and trustworthy payment methods like bank transfers, credit & debit cards, or even Apple Pay. The latest arrival on the scene is ‘Cryptocurrency’, a promising and one-of-a-kind addition to the entire digital transaction experience.

What is Cryptocurrency?

Cryptocurrency is an online or virtual currency that is fully secured by cryptography and allows users to purchase goods and services. It does not depend on banks for verifying any transaction, but instead maintains a public ledger of transactions as immutable blocks on the blockchain. The word ‘cryptocurrency’ has been derived from varied encryption techniques that are extensively used to secure all transactions. The aim of this method of encryption, namely cryptography, is to offer safety and security.

The technology that powers it is called blockchain - a decentralized network that manages and records transactions by connecting multiple computers. Bitcoin is considered to be a trendsetter and the most traded cryptocurrency that has turned out to be the key driver of investor interest.

Why Cryptocurrency?

While Bitcoin and Ether have earned humongous popularity, other notable cryptocurrencies on the rise are Litecoin, Polkadot, Cardano, and many more. Today, many businesses have started opting for cryptocurrencies as a potential payment method. The recent upsurge in the value of bitcoin has demonstrated cryptocurrency to be a promising and viable investment option. This is because cryptocurrencies offer global access, individual ownership, quality speed, enhanced adaptability, security & autonomy, affordable cost of a transaction, protection from inflation & fraud.

Is Cryptocurrency a safe & reliable investment?

While it is important to remember that no investments are genuinely safe, cryptocurrencies in that regard as well have shown a certain amount of risks. But they have also proven to be a lucrative investment for many people today. Investments in cryptocurrencies are not as complex as stock investments, where numerous stocks are available to confuse us every day. The bottom line is that cryptocurrencies can be safe, but if not taken appropriate safety measures, they can be hacked as well. There are possible risks and uncertainties with investments and we can’t deem any virtual currency investment to be unsafe for that.

Buying and selling cryptocurrency does not always have to be risky if the trader thoroughly understands the market and treats his coins with care. At present, there are numerous cryptocurrency options available to us but not all options are safe. Taking a certain amount of precaution is mandatory before investing your hard-earned money into cryptocurrency. It is exceedingly essential to conduct strong background research on the creator of the coin, whether they are at all affiliated with well-known brands, whether their screening processes are rigorous or traded on safe exchanges.

There can be serious repercussions if one does not apply the best practices for coin management to prevent hackers. With the growing popularity and wide adoption of cryptocurrencies, they have come under the radar of cyber-criminals. Many notable instances have occurred over the past few years where cryptocurrency owners have lost their coins or have not able to recover them - a downside to digital or virtual currency not being backed by a central bank or Government. Therefore, a very simple solution to prevent losses due to unauthorized access is to store cryptocurrency in an offline device such as a ‘cold storage’ device.

Cold storage is a proven way to hold cryptocurrency tokens offline, thereby protecting them from theft. The most basic method of cold storage is a paper wallet or an external hard drive for storing the address and the key required to access the particular currency. What is equally important is to access the cryptocurrency and other relevant information only during the time of the trading operation and for them to be disconnected after use. This can make it convenient to use and store cryptocurrencies with minimal risks, ensuring safety and reliability.

Summing Up

Cryptocurrency is indeed a revolution to the digital transaction sector and poised to join the ranks of conventional payment methods. It is accurate to state that the future belongs to cryptocurrency and it is undoubtedly here to stay. But like every new technology, it needs to be underpinned by regulatory clarity and robust systems in place for ensuring safety and security. It can be a reliable form of investment only if we are aware of the best methods to prevent our cryptocurrencies from frauds and risks.

The author is Co-Founder and CEO of Unocoin

DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.

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