Advantages and disadvantages of cryptocurrency
Advantages and disadvantages of cryptocurrency
This comprehensive article explores the key advantages and disadvantages of cryptocurrency. Cryptocurrency is a relatively new form of digital currency that has taken the world by storm. It offers many advantages over traditional forms of currency, such as low transaction fees, and anonymity. However, it also has its drawbacks, such as lack of government regulation, high volatility, and potential for misuse.
What is cryptocurrency?
According to Coinbase (2023) cryptocurrency is decentralized digital money which is designed to be used over the internet. It is decentralised as it is not regulated by any central authority. It operates on a peer-to-peer network, allowing users to send and receive payments quickly, securely, and anonymously.
Cryptocurrency uses cryptography for security. Cryptography is the practice of secure communication that allows for the encryption and decryption of messages. Transactions in cryptocurrency are verified through a blockchain, which is a public ledger that records all transactions.
History of cryptocurrency
Bitcoin is the first cryptocurrency in the world. It was outlined in principle in 2008 by Satoshi Nakamoto in a paper titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ (Ashford & Curry, 2023). Industry analysts believe that Satoshi Nakamoto is a pseudonym for the person or people who helped develop the first bitcoin software and introduced the concept of cryptocurrency.
How does cryptocurrency work?
Cryptocurrency works through a process known as mining. Traditional mining was to excavate the earth in search of or to extract coal or other minerals. However, mining in the context of cryptocurrency, refers to solving complex mathematical equations to generate new coins, and verify transactions in the blockchain (Coinbase, 2023). Cryptocurrency can be obtained by buying it on an exchange or through peer-to-peer transactions.
Advantages of cryptocurrency
Low transaction fees
Cryptocurrency has very low or, in some cases, no transaction fees. This means that, unlike with credit cards, the buyer does not have to pay any fees, which makes it very appealing to merchants. This is especially useful in international payments where transaction fees can be very high.
Anonymity
Payments made using cryptocurrency can be sent and received anonymously. This makes it a good option for users who donot want to share their personal information for online purchases.
Security
One of the main benefits of using cryptocurrency is increased security. Transactions are encrypted and cannot be altered once they are recorded on the blockchain. This makes it much more difficult for hackers to steal funds or alter transaction records.
Decentralisation
Another benefit of using cryptocurrency is that it is decentralized, meaning that it is not controlled by any government or financial institution. Indeed, it is a brand-new decentralisation model for money (Tambe & Jain, 2023).
Disadvantages of cryptocurrency
High volatility
Cryptocurrencies can be extremely volatile, meaning that their value can quickly increase or decrease based on a number of different factors. This means that users who invest in them must be prepared for significant fluctuations in their value.
Potential for misuse
Cryptocurrency can be used for money laundering, fraud, and other illegal activities due to its anonymity. This means that users must be very careful to avoid investing in anything that could be used for money laundering or fraud.
Lack of government regulation
Cryptocurrencies are not regulated by any central authority. This means that they are not protected by any government regulations, such as anti-fraud or anti-money laundering laws.
Hackers
Cryptocurrency exchanges and wallets are frequently targeted by hackers, who may try to steal an investor’s money. While transactions in cryptocurrency are encrypted and secure, the exchanges where cryptocurrency is bought and sold can be vulnerable to hacks and security breaches. DeVon (2023) reports that hackers stole $3.8 billion worth of cryptocurrency in 2022.
Rising fees
As more people adopt cryptocurrency, the trading volume is rising, which is causing transaction fees to increase as well. This can be a significant problem for users who want to make small purchases.
Scams
Scammers are frequently targeting people who are new to the cryptocurrency world. Therefore, people should be very careful when trying to buy or sell cryptocurrencies.
The most popular cryptocurrencies
Bitcoin is the most popular cryptocurrency. Other popular ones include Ethereum, Binance Coin, Cardano, BNB, Litecoin, Tether, and Dogecoin. Each cryptocurrency has its own unique features and benefits, and it is important to do research before investing in any of them.
How to buy and sell cryptocurrency
Buying and selling cryptocurrency can be done through exchanges or through peer-to-peer transactions. Exchanges are the most popular way to buy and sell it, as they provide a secure and easy-to-use platform for transactions. Peer-to-peer transactions involve buying and selling cryptocurrency directly with another person, without the need for an exchange (Binance Academy, 2023).
When buying and selling cryptocurrency, it is important to choose a reputable exchange and to use a secure wallet to store it. It is also important to be aware of the fees involved as these can vary depending on the exchange and the cryptocurrency being traded.
The future of cryptocurrency
Cryptocurrency is rapidly growing as a form of digital currency. More and more people are using it to make online purchases, and many merchants are beginning to accept it as payment. However, there are many challenges facing it today.
Though the future of cryptocurrency is uncertain, many experts believe that it will continue to grow in popularity and become more widely used. Some believe that it will eventually replace traditional currencies, while others believe that it will continue to exist alongside traditional currencies. As the technology behind it continues to evolve, it is likely that we will see new and innovative uses for this digital currency.
Summary of advantages and disadvantages of cryptocurrency
Cryptocurrency is a fascinating and rapidly evolving technology that has the potential to revolutionise the way people think about money and finance. While there are risks involved in investing in it, there are also many benefits, such as increased security and anonymity. As its popularity continues to grow, it is important to stay informed and educated about this emerging technology.
We hope like this article: ‘Advantages and disadvantages of cryptocurrency’. Please share the article link on social networking sites to help us grow. You may also like reading:
PESTEL analysis of the banking industry
Sources of finance for small businesses
Last update: 17 March 2023
References:
Ashford, K. & Curry, B. (2023) What is cryptocurrency, available at: https://www.forbes.com/advisor/investing/cryptocurrency/what-is-cryptocurrency/ (accessed 17 March 2023)
Binance Academy (2023) What is Peer-To-Peer trading and how do people use It? Available at: https://academy.binance.com/en/articles/what-is-peer-to-peer-trading-and-how-do-people-make-money-from-it (accessed 17 March 2023)
Coinbase (2023) What is cryptocurrency, available at: https://www.coinbase.com/learn/crypto-basics/what-is-cryptocurrency (accessed 17 March 2023)
DeVon, C. (2023) Crypto investors lost nearly $4 billion to hackers in 2022, available at: https://www.cnbc.com/2023/02/04/crypto-investors-lost-nearly-4-billion-dollars-to-hackers-in-2022.html (accessed 16 March 2023)
Tambe, N. & Jain, A. (2023) Advantages and disadvantages of cryptocurrency, available at: https://www.forbes.com/advisor/in/investing/cryptocurrency/advantages-of-cryptocurrency/ (accessed 15 March 2023)
M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.