Advantages and disadvantages of cryptocurrencies

Last update on May 14, 2021 at 01:31bySilke Grasreiner.

Cryptocurrencies are more in vogue than ever. In the media, this market is often presented one-sidedly as a financial revolution or badly as an investment risk. Cryptocurrencies are neither only good nor only bad, but like all types of investments, they have advantages and disadvantages. You can find out what these are here.

Hint: This article is published for informational purposes only. It is under no circumstances a recommendation for trading cryptocurrencies.Advantages of cryptocurrenciesPrivate and privacy

Anonymity and privacy were considered a security risk of cryptocurrencies. But thanks to the peer-to-peer technology blockchain and its strong encryption, a hacker would already need your private key to get your data. In contrast, banking systems, which are also very difficult to crack, are easier to access. You can even create Bitcoin addresses without linking them to personal data such as name and address. Since blockchain is public, total transparency is guaranteed. Low fees

The fees for transactions with cryptocurrencies are very low and sometimes even none are charged at all. One reason for this is that no third party is required to confirm the transaction. According to research by U.S. financial portal Investopedia, merchants who accept bitcoin transactions save between 0.5 and 5 percent plus $0.20 to $0.30 flat fee compared to payments by credit card — fees passed on to the consumer.

Decentralization and self-organization

One of the biggest advantages of cryptocurrencies is decentralization. There is no central authority in the network, but the transactions take place directly between the individuals (peer-to-peer). It follows that no institution sets rules for the owners of cryptocurrencies, not even for their flow and value. In contrast to this is the usual fiat money, which is prescribed and controlled by the state as a means of payment. Protection against inflation

Bitcoins have a maximum cap of 21 million coins. As mentioned above, no institution can change this fixed money supply. Consequently, an increasing demand for Bitcoins ensures an increasing value. The value thus corresponds directly to supply and demand and accurately reflects the market. Inflation is not possible if the money supply does not grow. However, other cryptocurrencies such as Ethereum and Dash rely on an inflationary currency model with unlimited money creation.

Speed and accessibility

Since no third parties are involved in the process, transactions can be carried out much faster than with regular money transactions via a bank or a credit card company. Transactions can be made around the clock and tracked. In addition, everyone who uses the Internet has access to cryptocurrencies. DisadvantagesLarge fluctuations in value

Many cryptocurrencies such as Bitcoin have high volatility. Since the value can change very quickly and unexpectedly, the timing of the investment is particularly important. It is difficult to deal with the fluctuations in the value of cryptocurrencies, especially for amateur traders who do not have much experience and expertise and therefore can lose money. Lack of regulation

Cryptocurrencies combine strong encryption, anonymity and decentralization. Governments and law enforcement agencies can therefore hardly locate users. This may be an advantage for the normal user, but it also enables criminal transactions and money laundering.

No refund and possible fraud

One of the biggest drawbacks is that transactions in cryptocurrencies cannot be reversed. A repayment can only be arranged by the recipient himself. So if you make a payment to the wrong recipient, you have no guarantee that you will get your money back. In addition, the Bitcoin boom has also attracted many scammers who lure users with the prospect of high profits. The lack of a refund policy also makes fraud easier and more lucrative.

The following link will tell you what types of scams with Bitcoin and other cryptocurrencies there are and how you can protect yourself. Lack of usability

Cryptocurrencies are an invention of the computer age, exiting only virtually and following a complicated mechanism for mining and management. It is therefore difficult for many to understand how cryptocurrencies work. You have to invest some time in the research. Even though more and more people are dealing with it, the use of cryptocurrencies is still limited and they are not legal tender.