By financen | April 9, 2018 - 5:23 pm - Posted in Cryptocurrency

Cryptocurrency. This new form of currency has been on the rise since the past decade. And just like the latest Star Wars movie, this digital currency has been met with divisive opinion. Whether this new form of currency is here to stay or if it’s just another gimmick is unknown. However, what is known is that a lot of people are jumping on this trend, some even to their financial detriment.

So, how does one avoid falling into such a situation? Knowledge and a bit of research will go a long way in helping investors decide whether cryptocurrency is worth the risk.

Unknown to most people, cryptocurrency actually came about in a fortunate stroke of serendipity. Satoshi Nakamoto, the accidental and unsung inventor of Bitcoin, was the man who started it all. He created what scores of others before him failed to – an online cash system.

This system employs much of the principle that all peer-to-peer file sharing platforms are built upon – decentralization.

So, the real question here is, how do you keep an accurate record of transactions without a central authority? Satoshi’s answer? With everybody.

All peers in the Bitcoin network are tasked with taking note of all validated transactions. This validated transaction will then be added as an unalterable and permanent block to the existing blockchain. In essence, every peer has a record of this successful transaction.

Now, one might think that there’s no way that digital currency can ever affect the real market. And you’d be right if you were referring to any form of direct effects on the real market. But this goes much deeper than simple numbers.

One has to look at the human mind to realize how cryptocurrency could affect the real market. Like all stock investments, there is always an element of risk involved. Investors who are experts at determining market outcomes are more psychologically equipped to handle bad investments because they know how to recover.

On the other hand, because cryptocurrency is exponentially more volatile than the stock market, the losses and profits undoubtedly follow this trend of volatility. Your investment could triple in value in a week, as well as depreciate by as much as ten times in the same amount of time.

Now, say that cryptocurrencies failed. The psychological impact that this scenario would have on investors would be catastrophic in the sense that this would undoubtedly break investor confidence. As a result, no investor will confidently invest in the stock market ever again. And the real markets, like a trail of dominos, will be bound to fall.

Investors are programmed to keep going in a certain direction, despite the magnitude of the risks involved. But once they meet failure, there are very few things that could remedy such a scenario. This is the danger with the crypto-hype that’s been spreading all around.

If too many investors jump on the bandwagon, as lucrative as it may be, the consequence of failure could very well cause widespread panic and the ultimate failure of every market.

But for now, whether cryptocurrency is the holy grail of Finance, or just another wet dream, is unknown. However, what is known is that wherever you find yourself in the financial scene, there will always be a mention of “cryptocurrency”.

This entry was posted on Monday, April 9th, 2018 at 5:23 pm and is filed under Cryptocurrency. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments Off on Cryptocurrency and How It Affects Financial Institutions

Comments are closed.