EMERGENCE OF CRYPTOCURRENCY: ESSENTIAL INFORMATION TO CONSIDER BEFORE INVESTING
OVERVIEW
Cryptocurrency has gained popularity in the financial industry in recent years, drawing interest from tech enthusiasts and investors. The prospect of huge gains is alluring, but some hazards are associated with the explosive expansion of Bitcoin, Ethereum, and other altcoins. The emergence of cryptocurrency trading has been notable, especially in Nigeria, where people are looking for alternatives to conventional banking and financial systems. It is imperative to comprehend the fundamental ideas, advantages, and possible drawbacks of cryptocurrencies before delving deeper into the world of virtual money. In this post, we’ll break down everything you need to know before making your first crypto investment.
HOW DOES CRYPTOCURRENCY WORK?
It is a virtual or digital cash that is secured by encryption. Blockchain technology enables cryptocurrencies to function on a decentralized network, in contrast to traditional currencies like the naira, which are governed by central banks. This increases transparency and makes transactions more resilient to manipulation because they are validated by a network of computers, or nodes, as opposed to a single authority.
Bitcoin, one of the most well-known cryptocurrencies, was developed in 2009 by Satoshi Nakamoto, an unidentified person. Other cryptocurrencies, often known as altcoins, like Ethereum, Litecoin, and Ripple, were made possible by Bitcoin. The possibility for large financial returns, minimal transaction costs, and the ability to avoid traditional financial institutions have made these digital assets more and more popular.
THE REASONS FOR NIGERIA’S CRYPTOCURRENCY ADOPTION
For several reasons, cryptocurrency has flourished in Nigeria. Nigerians consider cryptocurrencies to be a good substitute for traditional financial institutions due to issues including inflation, limits on foreign money, and an unstable banking sector. Millions of people now have access to the internet and mobile money, which opens up prospects for wealth accumulation through cryptocurrency trading.
Additionally, remittances are very important to the Nigerian economy, and using cryptocurrencies makes sending and receiving money abroad simpler, quicker, and less expensive. Cryptocurrency has emerged as a means for young people with strong technological skills to get around government limitations on international transactions and to save money on transaction costs.
But opportunity also carries risk. It’s critical to comprehend the benefits and drawbacks of Bitcoin investing.
THE ADVANTAGES OF CRYPTOCURRENCY INVESTMENT
1. Possibility of Large Profits
The potential for large gains is one of the key draws of cryptocurrencies for individuals. For instance, the price of Bitcoin shot up from a few cents to over $60,000 at its height, attracting the attention of early investors. Many investors see cryptocurrencies as a high-reward asset class, even though not all of them will see growth like this.
2. Openness and Decentralization
Since cryptocurrencies run on a decentralized structure, neither a government nor a central authority can control them. The blockchain, a public ledger, records transactions, making it transparent and hard to tamper with. This kind of transparency appeals to consumers who have lost trust in traditional financial institutions.
3. Availability and Sufficient Stock
Anyone with an internet connection can access cryptocurrencies, making them widely available. Furthermore, cryptocurrencies offer great liquidity—that is, they can be swiftly turned into cash—due to their perpetual buy and sell capabilities.
4. Financial Portfolio Diversification
Instead of conventional assets like equities, bonds, and real estate, cryptocurrency offers an option for investors wishing to diversify their holdings. It can act as a buffer against economic volatility and inflation, which is crucial in erratic markets like Nigeria’s.
THE DANGERS OF INVESTING IN CRYPTOCURRENCIES
1. Volatility
Cryptocurrencies are very volatile even if they can potentially yield large rewards. Prices can change significantly in a short amount of time. For example, the price of Bitcoin has fluctuated greatly, falling more than 50% in a matter of months. Significant financial losses may arise from this unpredictability, particularly for novice investors who join the market during a hype cycle.
2. Insufficient Regulation
Cryptocurrency is still mostly uncontrolled in many nations, including Nigeria. One of its main selling points is decentralization, but it also implies that investors are not shielded from government oversight. There is frequently no remedy if you lose your cryptocurrency holdings as a result of fraud, hacking, or technological problems.
3. Safety Issues
Although blockchain technology is safe in and of itself, cryptocurrency trading and storage platforms are susceptible to attack. Numerous exchanges have experienced hacks throughout the years, losing cryptocurrencies valued at millions of dollars. To reduce risk, it’s essential to keep your valuables in a safe hardware wallet.
4. Fraud & Scams
Scams have proliferated along with cryptocurrencies’ rising popularity. In the cryptocurrency space, bogus investment offers, Ponzi scams, and fraudulent Initial Coin Offerings (ICOs) are all too frequent. Nigeria was listed as one of the top five nations where scams involving cryptocurrencies were prevalent in 2020. Investors must be cautious and only deal with reputed platforms and exchanges.
HOW TO GET STARTED WITH CRYPTOCURRENCY INVESTING
Having known the advantages and disadvantages of investing in cryptocurrencies, the following stages will assist you in getting started:
1. Do a market analysis
Conducting extensive research is crucial before investing. While there are thousands of cryptocurrencies out there, not all of them are the same. Examine the history, features, and applications of the cryptocurrencies that pique your interest. For example, Ethereum provides a framework for decentralized apps (dApps), adding extra utility to Bitcoin, which is a store of wealth.
2. Select a Trustworthy Exchange
A cryptocurrency exchange is required to purchase cryptocurrency. Platforms like Binance, Luno, and Quidax are well-liked in Nigeria. Make sure the exchange you select has a solid security record, affordable costs, and a decent reputation.
3. Safely Keep Your Assets
As was already mentioned, security is a major worry with cryptocurrencies. Although you can keep your funds on an exchange, using a personal wallet is advised for increased protection. The most secure wallets are hardware wallets like Trezor or Ledger.
4. Begin Modestly
Due to the considerable risk involved in cryptocurrency investing, it is advisable to start small and only invest money that you can afford to lose. You can progressively raise your investment as you acquire more knowledge and insight into the market.
SUMMARY
For Nigerians wishing to diversify their financial portfolios and get around some of the constraints of conventional banking systems, cryptocurrency presents fascinating potential. However, there are risks associated with the market. You may profit from the digital currency revolution by making educated judgments and being aware of the fundamentals of cryptocurrencies, including their advantages, disadvantages, and
While Bitcoin may be the way of the future for finance, it is still vital to proceed with caution in this rapidly changing market. Make smart investments and stay informed.