Increased manufacturing and technical adoption have given digital currencies a competitive edge. One such currency is bitcoin. The majority of us are familiar with this well-known lingo. The only confusing thing is cryptocurrency.
Benefits of cryptocurrencies
1. Inflation protection
The value of many currencies has fallen over time due to inflation. Almost all cryptocurrencies come with a predetermined quantity when they first launch. There are only 21 million Bitcoins in existence worldwide, for example, and the number of any coin is given in the source code. When a result, as demand increases, so does its value, keeping up with the market and, over time, avoiding inflation.
2. Self-managed and governed
The management and governance of any currency are essential to its development. The transaction fee is paid to developers/miners in exchange for keeping cryptocurrency transactions on their hardware. Since the miners are paid for their efforts, they maintain accurate and current transaction records, protecting the currency’s integrity and decentralizing the data.
3. Confidential and safe
The security and privacy of cryptocurrencies have long been major concerns. The blockchain ledger is composed of a number of challenging mathematical puzzles. Because of this, bitcoin transactions are safer than other types of electronic transactions. For increased security and privacy, cryptocurrencies use pseudonyms that are unconnected to any user, account, or recorded data that may be traced to a profile.
4. Currency swaps are simple to complete.
Cryptocurrencies can be bought with a variety of currencies, including the US dollar, European euro, British pound, Indian rupee, and Japanese yen. Using separate cryptocurrency wallets and exchanges, one currency can be changed into another with the least amount of transaction costs by trading cryptocurrencies across wallets.
The fact that cryptocurrencies are highly decentralized is one of their key advantages. Many cryptocurrencies are controlled by companies that develop them before they are released onto the market, the developers who utilize them and those who own a sizable portion of the coin, or both. Decentralization helps keep the currency monopoly free and under check so that no single entity can control the flow and value of the coin, in contrast to fiat currencies, which are controlled by the government. This maintains its security and stability in turn.
6. A transaction that is inexpensive
One of the most popular applications for cryptocurrencies is the sending of money across borders. With the aid of bitcoin, a user’s transaction costs are reduced to a very small or nonexistent sum. It accomplishes this by doing away with the need for third-party authentication, like VISA or PayPal. There is no longer any need for additional transaction fees.
7. A quick method of money transmission
Cryptocurrencies have consistently held the top spot for transaction options. Whether they are domestic or foreign, cryptocurrency transactions happen incredibly quickly. This is because there are so few obstacles to overcome during the verification process that it takes incredibly little time to accomplish.
Drawbacks of cryptocurrency
1. May be applied in illicit dealings
The privacy and security of bitcoin transactions make it challenging for the government to find or keep an eye on any particular person based just on their wallet address. Bitcoin has already been employed in a number of illegal operations, including the purchase of narcotics on the dark web, as a means of transferring money. Some people use bitcoin to convert their illegally obtained funds through a reliable middleman, concealing the source of their funds.
2. Data loss may result in financial loss
The creators sought to create authentication systems that could not be defeated and source code that was virtually untraceable.
It would be safer to store money in cryptocurrencies rather than physical cash in bank vaults. However, there is no method to get back a user’s private key if they misplace it. The wallet will be kept safe, along with the quantity of coins inside. This will result in a monetary loss for the user.
3. Although decentralized, some organization still runs it
It’s commonly known that cryptocurrencies are decentralized. The movement and quantity of different currencies on the market, though, are still under the authority of some organizations and the founders. These investors have the capacity to influence the price of the coin in order to produce significant price fluctuations. Even widely traded coins, like Bitcoin, which tripled in value in 2017, are susceptible to these ploys.
4. Mining’s negative effects on the environment
Cryptocurrency mining is a particularly energy-intensive activity because it requires a lot of computer processing power and electricity. The biggest culprit in this is bitcoin. Strong machinery and a lot of energy are needed for bitcoin mining. You cannot accomplish this on a standard PC. The majority of bitcoin miners are found in countries like China where coal is utilized to produce power. As a result, China’s carbon footprint has significantly increased.
5. Vulnerable to hacking
Cryptocurrencies are quite secure, but exchanges are not. In order to properly run their user ID, the majority of exchanges keep user wallet information. These details could be taken by hackers, giving them access to numerous accounts.
Once they have access, these hackers can immediately transfer money from those accounts. Recently, hackers have breached some exchanges, like Bitfinex and Mt Gox, and stolen Bitcoin worth hundreds of thousands to millions of dollars. Even though the majority of exchanges are currently very secure, a new hack is always a possibility.
6. No Cancellation and refund policies
If there is a disagreement between the parties or if payments are accidentally transferred to the wrong wallet address, the sender cannot recover the coin. This can be used by lots of people to steal money from other people. One can easily be created for a transaction for which they never received the goods or services because there are no refunds.