With the digitization of currencies, businesses are starting to invest in cryptocurrency. This is a digital or virtual currency that uses cryptography to secure its transactions and to control the creation of new units. Bitcoin, the first and most well-known cryptocurrency, was created in 2009. Ethereum, Litecoin, and Bitcoin Cash are other examples of popular cryptocurrencies.
Cryptocurrencies are increasing in value, and businesses that invest early stand to reap the benefits. Cryptocurrencies are also a good way to protect against inflation. However, businesses should be aware of the risks associated with investing in cryptocurrencies.
The Pros
1. Increased Value - Cryptocurrencies are increasing in value, and those that invest early stand to reap the benefits. For example, Bitcoin, the first and most well-known cryptocurrency, was created in 2009. As of May 2018, one Bitcoin is worth over $8,000.
2. Inflation Protection - Cryptocurrencies are a good way to protect against inflation. Inflation is the increase in the price of goods and services in an economy over time. Cryptocurrencies are not subject to inflation because the number of them is finite.
3. Decentralized - Cryptocurrencies are decentralized, meaning they are not subject to government or financial institution control. This gives businesses more control over their finances and gives them a sense of security knowing their money is not at risk of being seized or frozen.
4. Quick and Easy Transactions - Cryptocurrencies can be transferred quickly and easily between parties. This makes them ideal for businesses that do a lot of international transactions.
5. Low Fees - Cryptocurrency transactions typically have low fees, which is another benefit for businesses.
The Cons
1. Volatility - Cryptocurrencies are volatile, which means their value can rise and fall quickly. For example, the value of Bitcoin rose from $1,000 to over $19,000 in 2017 before dropping back down to $8,000. This can be risky for businesses that invest in them.
2. Lack of Regulation - Cryptocurrencies are not regulated, which can lead to fraud and scams. For example, in 2017, the cryptocurrency company Bitconnect was shut down after being accused of being a Ponzi scheme.
3. Security Risks - Cryptocurrencies are susceptible to cyberattacks. For example, in 2017, Bitcoin was hacked and $31 million worth of cryptocurrency was stolen.
4. Limited Use Cases - Cryptocurrencies are not widely accepted, which means businesses may have difficulty using them to pay for goods and services.
5. Unpredictability - The future of cryptocurrencies is unpredictable, which makes it difficult to know whether they are a wise investment.
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