2022 wasn’t a good year for cryptocurrency. With U.S. inflation rising to multi-decade heights and the spike in interest rates, a “crypto winter” set in. The price of Bitcoin, Ethereum, and Cardano dropped by more than 55% each, Luna and TerraUSD collapsed, and the poor mismanagement of FTX culminated in its downfall. Despite that rocky year, things seem to be improving in 2023 and many believe that crypto is back in the game and slowly gaining its reach. So, is investing in cryptocurrency still worth it?
The benefits of cryptocurrency
One of the key benefits of cryptocurrencies is their decentralization. In other words, these digital currencies aren’t controlled by a central authority such as a government, bank, or financial institution. Instead, they operate through a peer-to-peer network, where users can send and receive transactions directly without a third-party intermediary.
This has several advantages. Firstly, it helps users avoid the high transaction fees typically charged by banks or digital wallets like PayPal, which can be a financial burden for those with limited resources. Secondly, some claim that, in the absence of third-party intermediaries, decentralization gives more control to users and facilitates greater transparency. No longer do users have to worry about abuses of power, surveillance, or censorship.
Cryptocurrency transactions are especially convenient for the privacy-conscious. Users aren’t required to disclose their personal information or identity in order to carry out transactions. Instead, every transaction is recorded on the blockchain (a public ledger), which is transparent yet anonymous. So, while transactions are visible to anyone on the network, the identity of the involved parties is not revealed, guaranteeing users a superior level of privacy and anonymity. Certain cryptocurrencies offer even more advanced privacy features, including stealth addresses and ring signatures that further obscure transaction details.
Cryptocurrencies’ Volatility and other cons to Consider
While cryptocurrencies offer several advantages over traditional financial systems, they also come with disadvantages that you should consider before investing in them. For example, a lack of regulation can make cryptocurrency users susceptible to fraud, hacking, and other security threats. In March of 2022, a gaming-based crypto network, Ronin Network, revealed that it had been hacked, resulting in the theft of 620 million USD. Binance, Poly Network, and Coincheck have also fallen victim to large-scale hacks and millionaire losses. Due to the lack of regulation, people who experience theft and fraud might struggle to find legal recourse.
Cryptocurrencies are also well-known for their volatility as they can experience extreme price fluctuations within a short time period. Take Bitcoin, whose price increased from just 1.000 to nearly 20.000 USD in 2017 before dropping to 3.000 USD in 2018. Similarly, in October 2021, Bitcoin hit an all-time high of almost 62.000 USD before dropping by 50% in just a few months. While all investments come with a certain level of risk, cryptocurrencies are especially risky as investors can experience sudden, significant losses.
While 2022 was a rough one for cryptocurrency, things appear to be improving in 2023, with experts and enthusiasts believing that crypto is slowly regaining its footing. Despite its volatility and risks, crypto remains an attractive investment due to its transparency, low transaction fees, and enhanced privacy.