The Pros and Cons of Cryptocurrency
An overview of the emerging digital technology known as cryptocurrency, including the pros and cons (benefits and risks), as well as a discussion of the history, present, and future.
“At their core, cryptocurrencies are built around the principle of a universal, inviolable ledger, one that is made fully public and is constantly being verified by these high-powered computers, each essentially acting independently of the others.”– Paul Vigna
What Is Cryptocurrency?
It’s called a cryptocurrency because it verifies transactions through encryption. Thus, by using advanced coding, data is stored and transmit cryptocurrency data between wallets and public ledgers. The purpose of encryption of cryptocurrency transactions is to provide security and safety.
As a digital, peer-to-peer payment system, cryptocurrency doesn’t have to rely on banks to verify transactions. Anyone anywhere can send and receive payments. Cryptocurrency isn’t physical money you can carry around and exchange for goods or services in the real world. Cryptocurrency payments exist only as digital entries that describe specific transactions recorded online in a public ledger database. You use a secure digital wallet to store your cryptocurrency.
Bitcoins enter into circulation through a process called bitcoin mining. The bitcoin miners receive an award that serves as an incentive to motivate people to assist in mining’s primary purpose. That purpose is to ensure the validity and legitimacy of the cryptocurrency. They do this by monitoring bitcoin transactions. These mining activities and responsibilities are spread among many users worldwide, making bitcoin a “decentralized” cryptocurrency that doesn’t rely on any central authority like a government or central bank to oversee its use.
People have criticized bitcoin because of its use by criminals in illegal transactions. It has also come under attack because of the large amount of electricity bitcoin miners use, its price volatility, and thefts from exchanges. Some economists, including several Nobel laureates, believe bitcoin is such a speculative investment that it will likely lead to a bubble at various times. Thus, several regulatory agencies have issued investor alerts about Bitcoin.
The History of Cryptocurrency
A pseudonymous person (or possibly persons) called Satoshi Nakamoto introduced the idea of bitcoin to the world on October 31, 2008, during the worst part of that year’s financial crisis. The Bitcoin network came into being on January 3, 2009, when Nakamoto mined the genesis block of Bitcoin (known as block number 0), which had a reward of 50 Bitcoins. In those early days, Nakamoto reportedly mined 1 million bitcoins.
Bitcoin mining is energy-use intensive, which helps restrict the amount of digital currency in circulation. Twenty-one million is the total number of bitcoins that can be mined, with 18.638 million bitcoin already mined as of February 24, 2021. That leaves 2.362 million yet to come into circulation. Once bitcoin miners have unlocked all the bitcoins, they will essentially be tap out the planet’s supply. This ceiling amount restriction, along with other facts, naturally affects overall supply and demand, which, in turn, can affect the Bitcoin price.
“If you don’t believe it or don’t get it, I don’t have the time to try to convince you, sorry.”– Satoshi Nakamoto
The Growth of Cryptocurrency
Interest in cryptocurrencies such as bitcoin has experienced steady growth as it has become increasingly integrated into different levels of our lives. And this increased awareness is driving the growing financial revolution. There are indeed both positives and negatives to the use of digital currency. However, it’s also true that more and more big businesses and corporations are looking at ways to integrate cryptocurrency technology and make the most of its advantages. Thus, the idea of digital currency isn’t going away anytime soon.
Fluctuations in value are creating a constantly changing market for bitcoins and other less popular cryptocurrencies. It’s like that you are looking for the best ways to take advantage of the growing demand for cryptocurrency. You also might be seeking profitable investment opportunities and therefore are considering a cryptocurrency investment. Or you can use it to manage your finances more securely. Consequently, you must become aware of not only its potential benefits but its negatives as well. This way, you’ll understand clearly what the available options are what to expect. This knowledge will improve your chances of being able to interact positively with cryptocurrency.
“As the value goes up, heads start to swivel and skeptics begin to soften. Starting a new currency is easy, anyone can do it. The trick is getting people to accept it because it is their use that gives the “money” value.” – Adam B. Levine
The Increasing Interest in Bitcoin
A growing number of people, especially those of younger generations, have become interested in bitcoin and other cryptocurrencies. On the other hand, most people don’t understand much about cryptocurrency and thus haven’t paid much attention. But it’s hard not to pay at least some attention to what’s happening in the cryptocurrency world because the topic shows up in the news a lot, sometimes in a dramatic fashion. An example of that was when a major business tycoon purchased $1.2 billion worth of bitcoin. A massive purchase such as that represents a huge bet on not only the near-term growth in the value of bitcoin but in the mid-to-long-term prospects of bitcoin and other cryptocurrencies. Unsurprisingly, bitcoin’s price zoomed up to even greater heights than it already was after that huge purchase.
Some of the Cons of Using Cryptocurrency
Cryptocurrency can be complicated and challenging to comprehend, especially if you’re not tech-savvy. People need to understand the idea of a decentralized financial system that uses something called blockchain to record transactions. Because cryptocurrency sometimes seems hard to comprehend, people are often wary of taking advantage of its benefits. Overcoming this hurdle would lead to see wider use of cryptocurrency.
Market fluctuations of cryptocurrency present a big challenge, especially for people investing in it, which many people are now doing. However, there are many other ways that you can use cryptocurrency. Some people use their digital currency to gamble online, buy tickets to sporting events, or even buy a house with bitcoin. However, most are just waiting for the dramatic market fluctuations to work in their favor. To facilitate a more widespread trust and understanding of cryptocurrency, you should treat your bitcoins as you would any other commodity.
As of yet, there’s no ironclad security for preventing the loss of your cryptocurrency, so being aware of safety risks is crucial. There are always scam artists who want to cheat to try to cheat you out of your hard-earned money, and digital currencies have become a popular target these days. Treat your bitcoins as real money and follow the same standard security protocol as you would with hard currency. Doing this will minimize your chances of incurring a loss that you can never recoup.
Some of the Pros of Using Cryptocurrency
Cryptocurrency’s unparalleled transparency is one of the principal reasons digital currency offers much more potential for accountability and societal change. Although using cryptocurrency is anonymous, all the transactions are stored on an open ledger (the blockchain). This means that the data can be viewed by anyone at any time. And that proves to be a significant boon for those wanting a more transparent banking system. Because of this transparency, bitcoin has become one of the hottest currency topics in the world.
Because of cryptocurrency’s 24-hour, instant accessibility, you can spend or buy wherever you may be, without even needing a computer to use it. You can manage everything on your mobile device, a technology that’s now available to millions of people around the world. Thus, you can easily and quickly access your finances and make real-time decisions. This easy accessibility has proved to be a key feature for bitcoin adoption, thus giving users worldwide opportunities they would not have otherwise had due as they struggled to become online consumers.
A cryptocurrency pro (and con) is absolute anonymity. When normal customs don’t bind a currency, this can be both a positive and a negative. With cryptocurrency’s total anonymity, it’s great for anybody who values their online privacy and doesn’t want to hand over too much of their digital data. Anonymity provides an additional layer of security that is an excellent benefit. But inevitably, criminals have adopted the technology, with the dark web and black market being major cryptocurrency users. Of course, criminals want to have anonymity to cover up their criminal activities, as they use their phones to send money anywhere in the world with a few taps. For law-abiding citizens, the benefits of anonymity are many. Why? Because there’s no chance of identity theft, which is a vital interest of anyone looking for more secure ways to operate online safely.
Cryptocurrency is no different than any other emerging technology that presents a degree of uncertainty about its future. Cryptocurrency’s popularity is growing, and businesses are trying to keep up with the growing demand for its use. However, it’s likely still too early to know how significant an impact the use of cryptocurrency will be. Since it represents a potential financial revolution, it’s worth keeping an eye on and maybe investing in it now before interest spreads worldwide.
The Benefits and Advantages of Cryptocurrencies
1. User Autonomy
User autonomy, one of the central tenets of cryptocurrencies, is the bitcoin’s primary draw for many users because they don’t have to deal with an intermediary authority like a government or bank. User, users can control how they spend their money. Thus, at least in theory, digital currencies give users more autonomy over their own money than fiat currencies do.
Bitcoin purchases are discreet are never associated with his personal identity unless a user voluntarily publishes his bitcoin transactions. Purchases using bitcoin, much like cash-only purchases, cannot easily be traced back to someone. That’s because the anonymous bitcoin address generated for a user’s purchase changes each time there’s a transaction. Despite this, bitcoin transactions are not totally anonymous or entirely untraceable. However, compared to some traditional payment forms, they are much less readily linked to personal identity.
3. Peer-to-Peer Focus
The bitcoin payment system works on a peer-to-peer basis. What this means is that users don’t require approval from any external source of authority. Thus, they can send and receive payments to or from anyone on the network without going through an intermediary.
4. Elimination of Banking Fees
It’s standard practice by cryptocurrency exchanges to charge “maker” and “taker” fees, as well as occasional withdrawal and deposit fees. However, there are many traditional banking fees involving fiat currencies, to which bitcoin users are not subject. Examples of these include minimum balance or account maintenance fees and no returned deposit fees, as well as no overdraft charges, among others.
5. Very Low Transaction Fees for International Payments
Although there are typically fees and exchange costs for foreign purchases and wire transfers, this isn’t the case for bitcoin transactions due to no government or intermediary institutions or government involvement. This practice keeps the bitcoin transaction costs very low, which can be a significant advantage for travelers. Additionally, this eliminates the inconvenience of typical authorization requirements and wait periods because any bitcoins transfer happens very quickly.
6. Mobile Payments
As long as bitcoin users have Internet access, they can pay using their coins in the same manner as many online payment systems. This is incredibly convenient because it means that purchasers using bitcoin never have to travel to a store or a bank to buy something. Unlike online payments made with U.S. bank accounts or credit cards, personal information is unnecessary to complete a bitcoin transaction.
Since users can send and receive bitcoins using only a computer or smartphone, or computer, bitcoin is theoretically available to populations of users who don’t have access to credit cards and traditional banking systems or other payment methods. This aspect may turn out to be truly revolutionary in its global impact.
The Disadvantages and Risks of Cryptocurrencies
Above we discussed the advantages of cryptocurrencies; however, they also have several drawbacks that have led many people in the investing and financial world to refer to them as the next “bubble.” Therefore, people need to identify and understand the obstacles and drawbacks of cryptocurrencies that may slow down mainstream adoption of this technology.
Drawback 1: Scalability
Possibly the most significant concerns with cryptocurrencies are the problems associated with scaling. The number of digital coins and their adoption is increasing rapidly. But transactions using cryptocurrency are still dwarfed by those processed every day by payment giants. And until their technology infrastructure is massively scaled to improve transaction speeds greatly, cryptocurrencies cannot compete on the same level as the big payment processing players. It’s complex and difficult to do evolve cryptocurrency technology seamlessly. However, several solutions, including sharding, lightning networks, and staking, have been proposed as options to overcome scalability.
Drawback 2: Cybersecurity issues
As a digital technology, cryptocurrencies will always be subject to hackers’ cybersecurity breaches because they are digital technology. This has already happened, with security breaches costing cryptocurrency investors hundreds of millions of dollars. The only way to address and mitigate this problem is through the continuous upkeep of the security infrastructure. Many major cryptocurrency players are now dealing with this problem directly. They are doing so by implementing enhanced cybersecurity measures that exceed those that traditional banking industries are using.
Drawback 3: Lack of inherent value and price volatility
The price volatility of cryptocurrency, tied to a lack of inherent value, is a real problem. That’s one of the primary reasons why some experts have characterized the cryptocurrency ecosystem as a bubble. While this is a legitimate and significant concern, linking the cryptocurrency value directly to tangible and intangible assets will help address the problem. Consumer confidence should rise as cryptocurrency is increasingly adopted, thus also decreasing volatility.
Drawback 4: Regulations
Cryptocurrency is not currently formally regulated and supervised by government entities such as the United States Federal Reserve or any other central bank, although China has made recent moves in this direction,
Even if the technology addresses the concerns previously mentioned, there will be an increased risk in investing in cryptocurrency until it is formally adopted by federal governments and regulated.
There are some other concerns with the technology, but they are mostly logistical. For example, changing protocols is necessary as the tech is improved. Changes such as this can interrupt the normal flow of operations and take quite a long time to implement.
The Future of Cryptocurrency
The future of cryptocurrency is still uncertain. However, proponents see unlimited potential. Conversely, critics of cryptocurrency see serious risk. Although there are many skeptics, even some of them admit that using cryptocurrency in specific applications can be a viable solution.
Bitcoin has drawn increased interest from institutional investors who are increasingly interested in cryptocurrencies such as bitcoin. There is also serious speculation that a digital cryptocurrency such as bitcoin might replace gold as a safe-haven asset. On the other hand, skeptics like to point out that bitcoin’s volatility makes this unlikely.
Nonetheless, bitcoin enthusiasts remain very bullish about it and believe it is likely to become the gold of the future. So what does cryptocurrency’s future look like? Will it be the next big bubble or the gold of the future? Only time will tell, of course.
“You should be taking this technology as seriously as you should have been taking the development of the Internet in the early 1990s.”– Blythe Masters
Because there are several potential barriers to the mass adoption of cryptocurrencies, it’s understandable that experienced investors are currently choosing to be cautious about this technology. And yet, most people believe that cryptocurrencies (and the associated blockchain technology) are here to stay. That’s because they offer too many of the advantages that consumers want in a currency: transparency, decentralization, and flexibility being chief among them.
Once cryptocurrency reaches a tipping point of mass adoption, its future is likely assured. In the meantime, it’ll remain fascinating for all of us to watch how things progress.
Thanks for reading. (Copyright Terry Mansfield. All rights reserved.)
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