Crypto is a relatively new asset class that began with the creation of the Bitcoin blockchain in 2009. The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology is that they don’t have a central authority, payment processor, or company owner.
Instead, crypto networks are peer-to-peer, meaning people can transact directly with one another. Many of the additional benefits of cryptocurrency stem from their decentralized and peer-to-peer nature. Let’s look at some positives of cryptocurrency in this crypto guide.
Benefits of Owning Crypto in 2021
1. Easy Transactions
Crypto transactions can be made easily, at low cost, and in a manner more private than most other transactions. Using a simple smartphone app, hardware wallet, or exchange wallet, anyone can send and receive a variety of cryptocurrencies.
Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be bought with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto. Someone could buy bitcoin at an ATM using cash then send those coins to their phone. For people who lack access to the traditional financial system, this may be one of the biggest pros of cryptocurrency.
2. Incredible Security
Because they are based on cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. This might be one of the most certain benefits of cryptocurrency.
Crypto security is determined in large part by hash rate. The higher the hash rate, the more computing power it would take to compromise the network. Bitcoin is the most secure cryptocurrency, having the highest hash rate of any network by far.
Using a crypto exchange is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or individuals making mistakes.
3. Short Settlement Times and Low Fees
While some people only want to invest in cryptocurrency for price appreciation, others might find benefit in the ability to use crypto as a medium of exchange.
Bitcoin and Ether transactions could cost anywhere from nickels and dimes to several dollars or more. Other cryptocurrencies like Litecoin, XRP, and others can be sent for pennies or less. Payments for most cryptos settle in seconds or minutes. Wire transfers at banks can cost significantly more and often take three to five business days to settle.
4. Exponential Industry Growth
The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes. Being involved now might reasonably be compared to being involved with companies on the leading edge of the internet back in the 1990s and early 2000s.
The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By June 2021, it rose to over $1.4 trillion.
5. Outsized Returns
It’s no secret that Bitcoin has been the best-performing asset of the last 12 years. When it began in 2009, Bitcoin essentially had no value. In the following years it would rise to a fraction of a penny and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.
Some altcoins have outperformed Bitcoin by wide margins at times, although many of those later saw their prices collapse. Gains like these might be among the most well-known cryptocurrency benefits. (The losses, on the other hand, may be among the most well-known drawbacks.) Volatility has characterized prices in the crypto space, which has been one of the key benefits of cryptocurrency for day traders and speculators.
6. More Private Transactions
Privacy can be one of the benefits of cryptocurrency, but crypto isn’t as private as some people might think. Blockchains create a public ledger that records all transactions forever. While this ledger only shows wallet addresses, if an observer can connect a user’s identity to a specific wallet, then tracking transactions becomes possible.
While it’s worth noting that most crypto transactions are pseudonymous, there are ways to make more anonymous transactions. Coin mixing services group transactions together in a way that makes it hard to pick them apart from one another, confusing outside observers. Individuals who run a full node also make their transactions more opaque because observers can’t always tell if the transactions running through the node were sent by the person running the node or by someone else.
Methods like these are for more advanced users and could prove difficult for those new to crypto. So while absolute privacy is really not one of the main positives of cryptocurrency, transactions are still generally more private than using fiat currency with third-party payment processors.
7. Portfolio Diversification
Cryptocurrency has become known as a non-correlated asset class. Crypto markets largely function independently of other markets, and their price action tends to be determined by factors other than those affecting stocks, bonds, and commodities.
Any asset that has risen by millions of percentage points over just twelve years, as a number of crypto coins have, clearly is not correlated to anything else. But it’s worth noting that during the last few years, cryptos have begun to sometimes trade in tandem with stocks for short periods of time.
8. Inflation Hedge
Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, are thought to be good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money, increasing the supply, things that are more scarce tend to appreciate in value.
With more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up. Additionally, the Bitcoin protocol, for example, is also designed to keep those coins scarce regardless of what happens with monetary policy.
Recommended: How to Invest During Inflation
9. Cross-Border Payments
Cryptocurrencies have no regard for national borders. An individual in one country can send coins to someone in a different country without any added difficulty. With traditional financial services, getting funds across international borders can take a long time and come with hefty fees. In some cases, doing so might not even be possible due to regulations, sanctions, or tensions between specific countries.
10. A More Inclusive Financial System
Some of the benefits of cryptocurrency extend to people who don’t have access to the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate.
People don’t have to have permission from any financial authority or government to use the crypto ecosystem. (Though it’s worth noting that Bitcoin mining is banned in China.) They also don’t necessarily need to have a bank account. There are billions of people today who are “unbanked,” meaning they have no access to the financial system, including bank accounts. With crypto, all these people need is a smartphone, and they can essentially become their own bank.
11. Transactional Freedom
One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction freer and censorship-resistant.
Banks or other payment processors can choose to cut off services to anyone for any reason. This can make things difficult for some journalists, political dissidents, or other individuals working in nations with oppressive government regimes. Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them.
12. 24/7 Markets
Stock markets are only open on weekdays during the regular business hours of 9:30 am to 4:30 pm Eastern Time, in the case of the New York Stock Exchange (NYSE). During nights, weekends, and on holidays, most traditional financial markets are not open for business.
Crypto markets, on the other hand, trade 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.
The above are just a few of the most important advantages of cryptocurrency. Of course, there are potential flaws as well — its volatility being a major downside. As with anything, those interested in buying, selling, and trading crypto would be wise to do their research before getting involved in the crypto market.
Ready to invest in crypto? With a crypto trading account from SoFi Invest®, you can buy and sell Bitcoin, Ethereum, Litecoin, Dogecoin, Cardano and more.
Photo credit: iStock/tolgart
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