With Cryptocurrency constantly adapting and developing, we wanted to delve into the craze as it becomes such a popular form of digital currency. In this blog, we discuss some of the advantages and disadvantages of cryptocurrency.
Cryptocurrency is a digital or virtual currency that is secured by cryptography, making it almost impossible to counterfeit or double-spend. Most cryptocurrencies are decentralised networks that are based on blockchain technology.
Since the creation of Bitcoin, it has created a booming set of payment services. These digital currencies are not created or even backed by any government and not one specific user has complete control over them. It's clear that cryptocurrencies have created an impact in today's digital economy, but the question is why have so many people invested their belief and money in digital currencies that don't really have intrinsic value and nobody to back them up?
If you've been considering investing in cryptocurrencies, or just simply curious about how you can use it to manage your finances more securely, you need to be aware of the potential benefits as well as knowing the disadvantages. It will give you the options with a clear and precise view of what to expect, while improving your chances of having a positive interaction with cryptocurrency. After looking into the pro's and con's, this is what we found.
The Advantages
Easy Transactions - One of the benefits of using cryptocurrency transactions is that they become a one-to-one process, taking place on a peer-to-peer networking structure - replacing the need of a middle man. This results in a lot more clarity when it comes to creating audit trails, creates less confusion about who needs to pay what and to who, whilst also providing higher accountability since both parties in a transaction need to be aware of each other.
Brokers, agencies and authorised counsel can cause a considerate amount of intricacy and price to what could actually be a very private exchange in a traditional business interaction - along with endless amounts of paperwork, banks profitability to pay and the extra fees.
Privacy And Data Protection - Anonymity and data protection has been one of the main concerns of cryptocurrency. The blockchain and it's strong encryption makes the hackers need a private key to even put them at risk - although it's a possibility, it still makes it incredibly difficult for this to actually happen. In comparison to hacking a banking system, that is still difficult, but they have the potential to gain access to more than one bank account.
Universal Recognition - If you often carry out business globally, or travel frequently, you will usually be exposed to exchange rate risks - meaning the transactions can be affected by currency exchange rates. You may also experience fees associated with exchanging one currency for another or come across challenges exchanging currencies all together.
Luckily with cryptocurrencies like Bitcoin, this doesn't become an issue as the digital currency is universally recognised at a value. This helps to save time in determining a price for a transaction, while also reducing any fees that can be associated with exchanging money from one form to another. With cryptocurrency being adopted globally, it is starting to make financial transactions faster and more efficient.
Decentralised Issuance - Cryptocurrency can't be regulated, valued, created or distributed by any government or central bank. The currency is depoliticised, simply because it's created by the people, which removes the power that FIAT (a currency regulated by governments) money has over the population. Nobody has the authority to freeze, charge or demand the coins you make and they can't be stolen or seized in any conditions. Cryptocurrency transactions do not require the disclosure of any confidential information - instead they use two keys, a public and private key.
The Disadvantages
Cyber Security - Cryptocurrencies, like digital assets, become vulnerable to protection breaches and can fall into the hands of hackers. This has already happened, with multiple ICOs getting breached and costing investors hundreds of millions. Mitigating this requires continuous upkeep of security infrastructure. We have already seen many people dealing with this directly, using enhanced cybersecurity measures that tend to go beyond those used in the traditional banking industries.
Price Volatility - The cryptocurrency market is extremely volatile, which can result in significant losses or gains. The cost of currencies can fluctuate dramatically in such a short amount of time. In 2017, Bitcoin had reached a new high of around $20,000 per coin but fell to just $11,000 in August 2020.
Illegal Transactions - Considering the privacy and security of cryptocurrency transactions are high, it's extremely hard for the government to try track down any user by their wallet address or keep tabs on their data. Bitcoin has been used as a form of exchanging money in a lot of illegal deals in the past, such as making transactions on the dark web. There has also been evidence to show that cryptocurrencies are being used by some users to convert their illicitly obtained money through a clean intermediary, to hide it's original source.
No Refund/Cancellation Policy - One of the biggest disadvantages to using cryptocurrency is that there is a no refund policy - meaning if you were to accidentally pay someone that wasn't intended, there is no guarantee that you will get your money back. Since Bitcoin started and the many success stories it has generated, cryptocurrencies have gained a mass amount of attention, which unfortunately attracts scammers. The huge lack of a refund policy makes it easier for people to commit fraud with no real resolution.
After researching this digital currency, it's clear that it's considered as one of the most popular operations to develop within the future. However, it definitely comes with it's risks, so it's extremely important to understand the pro's and con's - having knowledge of the benefits and disadvantages will undeniably give you leverage to be able to use it correctly, efficiently and safely.
Getting into the latest currencies, financing and investing opportunities is easy, but making smart decisions about your future takes careful planning and consideration. Cryptocurrency is clearly going to stick around, especially as technology develops - but what does this mean for the future of crypto? We want to know your thoughts.
Is it something you're invested in? Or do you think it's something people should avoid due to the possible risks?