A cryptocurrency is a digital or virtual kind of currency, marked by cryptography, a network that’s distributed across an oversized number of computers which makes it nearly impossible to counterfeit or double-spend. Basically, it is a system that allows for online secure payments, which are denominated in virtual tokens.
It works on decentralized networks that work on blockchain technology, a system of recording the knowledge exceedingly; that makes it very difficult or impossible to vary or cheat the system. This structure allows them to exist outside the control of governments and regulatory authorities.
Cryptocurrencies became a worldwide phenomenon during the talk that they are visiting to replace general currencies within the near future. Cryptocurrencies adoption continues to understand momentum partially due to the world’s progression towards a cashless society.
The fact that some people, nowadays, transact through electronic money continues to affirm suggestions that cryptocurrencies could be the currencies of the long term. However, it will take it slow before they find their way into the mainstream sector, given the strong opposition from regulators worldwide.
With the industrialization and involvement of technology, digital currencies are gaining a good position over others. One such currency is bitcoins. Many folks are accustomed to this well-known terminology. Through cryptocurrency, it’s easier to transfer funds directly between two parties, without the requirement for a trusted third party like every bank or other institution.
Advantages of Cryptocurrency:
1. Protection from inflation:
Inflation has caused many currencies to urge their value to decline with time. At the time of its launch, almost every cryptocurrency is released with a tough and fast amount. The ASCII computer file specifies the quantity of any coin; there are only 21 million Bitcoins released within the planet. So, because the demand increases, its value will increase which might maintain with the market and, within the long run, prevent inflation.
2. Self-governed and managed:
Governance and maintenance of any currency is also a serious factor for its development. The cryptocurrency transactions are stored by developers/miners on their hardware, which they get the transaction fee as a gift for doing so. Since the miners have become acquired it, they keep transaction records accurate and up-to-date, keeping the integrity of the cryptocurrency and also the records decentralized.
A major pro of cryptocurrencies is that they are mainly decentralized. Many cryptocurrencies are controlled by the developers using it and those who have a significant amount of the coin or by a corporation to develop it before it’s released into the market. The decentralization helps keep the currency monopoly free and in restraint, so nobody organization can determine the flow and so the worth of the coin, which, in turn, will keep it stable and secure, unlike fiat currencies which are controlled by the Government.
4. Cost-effective mode of transaction:
One of the most uses of cryptocurrencies is to send money across borders. With the help of cryptocurrency, the transaction fees paid by a user are reduced to a negligible or zero amount. It does so by eliminating the need for third parties, like VISA or PayPal, to verify a transaction. It removes the requirement to pay any extra transaction fees.
5. Currency exchanges finish smoothly:
Cryptocurrency can be bought using many currencies rather like the US dollar, European euro, British unit of measurement, the Indian rupee, or Japanese yen. Varied cryptocurrency wallets and exchanges help convert one currency into another by trading in cryptocurrency, across different wallets, and by paying minimal transaction fees.
6. Secure and private:
Privacy and security have always been concerns for cryptocurrencies. The blockchain ledger relies on different mathematical puzzles, which are hard to decode. It makes cryptocurrency safer than ordinary electronic transactions. Cryptocurrencies are for better security and privacy, and they use pseudonyms that are unconnected to any user account or stored data that might be linked to a profile.
7. Easy transfer of funds:
Cryptocurrencies have always kept themselves as an optimal solution for transactions. Transactions, whether international or domestic in cryptocurrencies, are lightning-fast. It will be because the verification requires little time to process as there are only some barriers to cross.
Disadvantages of Cryptocurrency:
1. Illegal transactions:
Since the privacy and security of cryptocurrency transactions are high, it’s hard for the government to trace down any user by their wallet address or keep tabs on their data. Bitcoin has been used as a mode of payment (exchanging money) during many illegal deals in the past, like buying drugs on the dark web. It has also been used by some people to convert their illicitly acquired money to hide its source, through a clean intermediary.
2. Risk of Data Loss:
The developers wanted to make virtually untraceable ASCII documents, strong hacking defenses, and impenetrable authentication protocols. It would make it safer to position money in cryptocurrencies than physical cash or bank vaults. But if any user loses the private key to their wallet, there is no getting it back. The wallet will remain locked away along with the number of coins inside it. It might result in the loss of the user.
3. Power lies in few hands:
Although cryptocurrencies are known for their feature of being decentralized, the flow and amount of some currencies within the market are still controlled by their creators and some organizations. These holders can manipulate the coin for enormous swings in its price. Even hugely traded coins are at risk of these manipulations like Bitcoin, whose value doubled several times in 2017.
4. Buying NFTs with other tokens:
Some cryptocurrencies can only be traded in one or some fiat currencies. It forces the user to convert these currencies into one all told the most currencies, like Bitcoin or Ethereum first and then through other exchanges, to their desired currency. It can apply to just some cryptocurrencies. By doing this, the extra transaction fees are added within the method, costing unnecessary money.
5. No refund or cancellation:
If there is a dispute between concerned parties, or if someone mistakenly sends funds to a wrong wallet address, the coin cannot be retrieved by the sender. It might be utilized by many folks to cheat others out of their money. Since there are no refunds, one can easily be created for a transaction whose product or services they never received.
6. High consumption of Energy:
Mining cryptocurrencies require plenty of computational power and electricity input, making it highly energy-intensive. The main culprit during this is often Bitcoin. Mining Bitcoin requires advanced computers and plenty of energy. One cannot do it on ordinary computers. Major Bitcoin miners are in countries like China that use coal to produce electricity. It has increased China’s carbon footprint tremendously.
7. Vulnerable to hacks:
Although cryptocurrencies are very secure, exchanges don’t seem to be that secure. Most exchanges store the wallet data of users to figure their user ID correctly. This data is often stolen by hackers, giving them access to lots of accounts.
After getting access, these hackers can efficiently transfer funds from those accounts. Some exchanges, like Bitfinex or Mt Gox, have been hacked within the past years, and Bitcoin has been stolen in thousands and countless US dollars. Most exchanges are highly secure nowadays, but there is always a possibility for a further hack.
Disclaimer: Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.