Last updated on 13 May 2021 at 05:05 byBob Dijks.
Now that you know what cryptocurrency is and how this virtual money came to be, you will undoubtedly want to know more about the subject. Opinions in the media about the cryptocurrency market are divided. There are sources that talk about a financial revolution, while others mainly talk about the investment risks. The truth lies somewhere in the middle. It is not possible to label the digital money as good or bad. There are many advantages and disadvantages to cryptocurrencies. In this article we weigh them against each other.
Please note: This article is written purely for informational purposes only. Investing in cryptocurrencies is entirely at your own risk.
The benefits of cryptocurrency
First, let’s look at the positive aspects . Why is digital money so fantastic?
Privacy and data protection
Anonymity and data protection are two of the absolute pillars of cryptocurrency. Thanks to the blockchain technology and the strong encryption, hackers can practically impossible put the owner of the coin at risk. It is and remains many times easier to hack a bank account or a credit card. To be able to trade in virtual coins, you need an address. It concerns a fictitious address that – despite being publicly visible – does not contain any identifiable personal data.
Low transaction costs
The transaction costs when trading cryptocurrencies are very low. Sometimes you can even make a cryptocurrency transaction completely free of charge . The main reason for this is that there are no banks or other third parties involved in this process. The fee to be paid does not depend on the value of the transaction, but on the size of the data (in bytes) involved in the transfer.
Decentralisation and self-management
One of the biggest advantages of digital currencies is that they are decentralized . This means that there is no regulatory institution in place to monitor the transactions. Payments in cryptocurrency are made via the peer-to-peer network. As a result, there are no limits on the circulation and value of the currency.
Inflation protection
In the case of Bitcoin, pre-eminently the most popular cryptocurrency, there are a total of up to 21 million coinsto mine. There is no single authority or financial institution that can increase that number by “producing” more Bitcoin. Due to limited availability, increasing demand will result in a higher value. As a result, the risk of inflation remains limited.
Speed and accessibility
Because there are no third parties involved, the transfer rate is many times higher than that of a regular financial transaction. Cryptocurrency transfers can be traced 24 hours a day, 7 days a week.
Disadvantages
Now let’s look at the less positive aspects of cryptocurrency.
Strong volatility
Most cryptocurrencies, such as Bitcoin, have strong volatility. Because the value of virtual currencies can change quickly and unpredictably, investment time is extremely important. Novice investors and hobbyists may lose a lot of money in a short time.
Regulatory issues
Cryptocurrency combines advanced encryption with decentralization and anonymity This makes it very difficult for governments and enforcement agencies to track down users. While that offers many benefits from a privacy standpoint, it also paves the way for money laundering and other criminal activity.
One of the biggest drawbacks is that there is no refund policy for crypto payments. If you accidentally make a payment to someone, you have no right to demand a refund. There are no third parties involved in cryptocurrency payments that can legally support you. This makes the crypto world an attractive playing field for scammers.
It is not user-friendly
Cryptocurrency are designed by computer scientists. The way things like blockchain and mining work is difficult to explain in jip-and-janneke language. To gain a little knowledge about the operation of virtual coins, you will have to dive into the theory. Traditional currencies are much more user-friendly than cryptos.
Image: Unsplash: @Bermix Studio; @Launchpresso; @Austin Thistle; @Pierre Borthiry.
