The cryptocurrency ecosystem plays an important role because it allows fiat currencies such as the dollar to transfer around the globe via a blockchain. These cryptocurrencies can be backed either by a central third party that claims to have the fiat equivalent to back every token they provide or by a decentralized algorithm.
Luna is a cryptocurrency that backs the stablecoin UST. It was intended that Luna’s supply would be controlled so that UST could still be purchased at $1 per token. This failed, and the peg was shattered. Luna dropped from more than $100 per coin to just 1 cent. UST, which is supposed to trade at $1 per coin, was less than $0.10 at the time of writing.
Many people have lost large sums of money they believed they had safe-stored as digital dollars. This could have devastating consequences for their lives and their life savings. Let’s look at the reasons people use cryptocurrency and what the risks are. I also believe that real estate could be an alternative to some stablecoins.
1. Cryptocurrency: Why Use It?
Cryptocurrency can be used in many ways. Many cryptocurrency traders use Crypto to hold cash during down markets. They can quickly purchase Bitcoin and other digital assets again without waiting for a bank transfer. This allows crypto traders the ability to quickly react to changes in market conditions.
Cryptocurrency can also be used to save money. Mainstream banks offer interest rates below 1% and inflation is increasing. The rate of inflation is even higher when you consider the amount of digital money being printed. This is what many crypto enthusiasts believe. If you store your money in a bank it will lose value over time.
There are a variety of decentralized and centralized cryptocurrency companies that offer higher rates of interest. The UST stablecoin allowed you to earn as much as 20% per year. For those who are concerned about inflation, this is a much better way to keep the cash. This method is used by many investors to protect their capital and reduce volatility in the cryptocurrency market. This allows cryptocurrencies to play an important role in the digital asset ecosystem.
Read More: Profit of Cryptocurrency Investment
2. What are the potential risks associated with Cryptocurrency?
There are two types of Cryptocurrency: centralized and decentralized. Each type of Crypto comes with its own set of risks. Centralized digital tokens are tokens that are issued on a blockchain and have a central third party backing them, such as a company. The third-party guarantees that every coin they issue will be backed by money in the bank, or assets like bonds. By going to the issuer, holders of Cryptocurrency can redeem tokens for the currency backing them. These tokens can be traded on exchanges peer-to-peer, but most of the time they are not.
A centralized stablecoin may not have enough backing. A stablecoin issuer could be tempted not to have enough backing to issue tokens. This is because tokens will likely be redeemed in a single transaction. There are also regulatory risks even if the token has been fully backed. A government could object to the stablecoin issuer and freeze the money backing it. One of these scenarios could result in a stablecoin losing its peg and becoming worthless.
Another approach is to use an algorithmic, decentralized stablecoin. These coins are programmatic and can be backed by other assets to make them pegged to $1. A bit of code called a smart contract adjusts the backing on the blockchain. This type of Crypto has a problem. It requires programmers to anticipate all possible outcomes and not make mistakes. Things can go horribly wrong as with UST.
3. Long-term savings can be achieved by using real estate rather than Cryptocurrency
Although cryptocurrencies can be very useful, I would not risk my entire savings with them. I wouldn’t keep my wealth in the bank, and let inflation eat it. What’s the solution? For me, real estate. There is an increasing demand for land, but a small supply. All of these people require housing. Capital appreciation can protect you against inflation while you can earn the equivalent interest on your savings through the rent that tenants pay.
I reside and invest in the U.K., where land is very limited. It is also a popular destination for migrants. The law protects property rights, and U.K. realty is a safe, historically proven way to keep your wealth. You can also use leverage in the form of a mortgage to make your money go further.
If I had large amounts of Crypto money right now that I wanted to save for long-term savings, I’d definitely take some of it and invest in real property. There are many strategies that can help you get better returns than Cryptocurrency and less risk. It doesn’t matter what you do, it’s important to know the pros and cons of each option and to diversify accordingly.