What can a bitcoin investor tell loved ones who are curious about cryptocurrencies? Here are some often-asked and significant concerns about cryptocurrencies, along with suitable answers and viewpoints from professionals in the field.
What Exactly is Cryptocurrency?
One of the most common questions a crypto investor may be asked is what crypto is. Crypto is a digital currency that can be used as a medium of exchange. Peer-to-peer (P2P) payments and retail purchases are examples of this exchange.
Cryptocurrencies exist on the blockchain, a public ledger that records all transactions, allowing anyone to see how money flows through the network. While anyone can see how much money a user has and how they spend it. Users must use a wallet to send and receive Crypto, and these wallets employ alpha-numerical identifiers, which provide users with an additional layer of anonymity.
Function of Crypto
The primary goal of cryptos is to allow anyone to send and receive money via a decentralized P2P network. This functions as a digital cash equivalent. When users pay using cash, for example, they pay directly to another person rather than through an intermediary such as a bank or payment processor.
On a digital level, Crypto allows anyone to transfer money directly to another person, entity, or organization while maintaining complete control over their funds.
Due to their limited supply, high volatility, and high level of speculation, cryptos are also being used as investment vehicles, with users able to make high returns.
Does Crypto have Any Value if Nothing is Backing it?
Except for stablecoins like USD Coin (USDC) and Tether (USDT), which have a sizable portion of their tokens backed by fiat currency reserves and bonds, most cryptos aren’t endorsed by traditional assets. Since cryptos have no backing, some individuals would wonder why they are valuable.
First off, a cryptocurrency’s utility contributes significantly to its value. There will be greater demand for a coin the more it is required to complete a given task. Examples include the usage of cryptocurrencies as a store of value and applications for specific protocols in sectors like decentralized finance (DeFi) and NFTs.
Fiat currencies like the US dollar, euro, and British pound aren’t backed by anything and are also important to note (thus the term “fiat” money).
The value of cryptos is also influenced by speculation and investment. Investors are more likely to purchase and hold a coin if they think its value will rise over time, anticipating a profit in the future.
Can Cryptos Replace Fiat Currency?
In general, no, because Crypto is unregulated, and many services, products, and commodities will always require traditional cash. On the other hand, governments are considering developing their own digital tokens known as central bank digital currencies (CBDCs), and decentralized cryptos are finding new applications.
However, Some analysts think that when it comes to acceptance, the fundamental ideas underpinning cryptocurrencies put them ahead of conventional money.
Is it Possible to Hack Crypto?
Cyberattacks hardly ever succeed against blockchains themselves. In light of this, the best approach for users to protect their money is to keep it in a non-custodial wallet, which is a wallet that enables individuals to control their private keys and wallet seed.
A hacker must know both the wallet seed and the private key to access their cash. To deceive consumers into disclosing information like passwords and login credentials so the hackers may access their funds, hackers frequently conduct phishing attacks against platforms.
What Drives up the Price of Cryptos?
The key elements influencing the Price of cryptos include speculation, supply, and demand. Most cryptos have a finite supply, and when there is high demand for a particular coin (driven by belief about its potential utility), the Price typically rises in response.