Bitcoin was introduced in 2009 as the world’s first decentralized digital currency, a form of money unlike fiat (government-issued). Cryptocurrency currencies isn’t controlled by central banks or any other financial institutions. Cryptography controls Bitcoin transactions while defining them publicly and permanently so nobody can copy your coins.
We’ll look at the Pros and Cons of Cryptocurrency, Although it offers real benefits both for its users and for the broader economic system.
It is important to realize that there are good reasons why cryptocurrencies were invented in the first place. If you’re curious about crypto, you should carefully weigh these Pros and Cons of Cryptocurrency to arrive at an informed decision as to whether to participate in cryptocurrency markets and to what extent.
20 Pros of Cryptocurrencies
These Pros will help anyone get a better idea of how digital currencies can be beneficial if used correctly:
A lot of digital currency owners prefer keeping their transactions private without having third parties knowing where they spend their money.
Digital currencies allow for peer-to-peer transactions without a third party, and this minimizes risks as well as cutting out transaction fees.
Unlike banking or traditional payment systems such as PayPal. Bitcoin allows for fast and convenient transactions across borders at low cost, it saves time by eliminating third parties which add layers of complexity and increase overhead costs.
For example, two people can make payments to each other directly with blockchain technology, meaning there are no intermediary fees.
3. Limited supply
Digital currencies have a limited supply, unlike fiat money which is created as needed through fractional reserve banking, thereby creating inflation and devaluing each unit of currency in circulation over time.
4. Quick international payments
Since digital currencies do not require third party validation to exchange units across borders, it allows for almost instant transactions for a very small fee. For example, you can send 10 Bitcoin anywhere in the world at any time for less than 0.5% transaction cost.
Traditional wire transfers are costly and slow in comparison; because they rely on correspondent banks, two 24-hour cycles are required (after initiating the transfer) before funds become available for use by recipients. Banks also charge fees based on amounts sent and received, making small transactions uneconomical.
5. Safe from fraud
Unlike traditional payment methods such as credit cards, cash, or precious metals such as gold and silver that can be stolen via robbery or fraudulent transactions, cryptocurrencies are virtually impossible to counterfeit because they employ the latest encryption techniques. Cryptocurrencies also do not require trusting a third party with your money, this is an advantage over using exchanges like MtGox.
For example, Coinbase holds 98% of customer funds in cold wallets (not on the internet) thereby guaranteeing security.
6. Transaction fees are low
While traditional payment systems such as banks charge anywhere from 3-10% transaction costs, crypto markets typically charge 0.5%. [ However this varies widely with some exchanges charging a flat rate of 1% while others using a more complex algorithm to determine the fee based on current bid/ask orders.]
7. Fast transactions
Transactions on digital currency platforms clear within 10 minutes or less which is much faster than traditional banks which can take multiple days to transfer funds.
8. No need for banks
Digital currencies allow you to transfer money directly from one person to another without needing a bank in the middle, and this saves transaction costs which otherwise would have been paid to third parties.
For example, when transferring funds using Bitcoin your only expenses will be 10 minutes worth of mining fees (currently 0.0001 BTC or $0.06) plus any miner fees charged by your wallet provider if you are not using a hosted wallet service such as Coinbase where these fees are already covered by the provider.
9. Censorship resistant
Digital currency transactions cannot be censored or reversed arbitrarily because they are permanent and part of an immutable public ledger called the “blockchain.” Combined with a lack of control over one’s personal information by third parties, this feature could have enormous implications for banking the unbanked and enhancing financial inclusion.
For example, let’s say you live in Venezuela , and your government has decided to start printing more money than they have assets so that people stop buying US dollars (Venezuela’s currency is pegged to the dollar).
This hyperinflation would make it impossible for anyone in the country to buy anything or pay rent because prices are doubling every few weeks, people end up starving in the streets.
However, if you had Bitcoins then you can use them to buy things from merchants overseas on websites like Amazon since the middleman (the bank which usually fees 2-3%) is eliminated.
10. No counterfeiting
Cryptocurrencies are immune to counterfeiting because their history of transactions cannot be edited once they have been verified by miners (the record keepers that confirm a cryptocurreny owner owns any given amount).
For example if you send someone 1 Bitcoin then it will forever show up on the blockchain as one unit being sent from your wallet out to theirs and cannot be changed to say 3 Bitcoins.
11. Global access
Digital currencies give everyone equal access regardless of economic status or physical location, this means developing nations can now start building economies without needing to first install a costly physical infrastructure.
This also include the ability for investors living in developing countries with weak banking systems and high inflation like Argentina, Venezuela or India to invest into foreign markets that were previously impossible due to expensive international wire transfer fees and time delays since an intermediary bank was needed.
12. A global store of value
Cryptocurrencies have become so popular that they now boast of over $1.5 Trillion marketcap. As more people buy Bitcoin because of its potential as a safe haven similar to gold (which has been used as such for 6000 years), it becomes harder and harder to wish away since the technology has major social momentum behind it.
13. Transparency through decentralization
Every transaction on the entire network is public and anyone can view it at anytime since transactions are stored on a public ledger called the blockchain. This gives financial institutions, which may not always be honest, less power over their users (for example: If you are an Indian citizen then you must pay the people running your bank 10% of your money for the privilege of depositing it into their safekeeping while paying up to a 5% foreign exchange fee when sending money overseas).
14. Immutable Ledger
No one can change or reverse any transaction that has already been verified by miners because each block in Bitcoin’s blockchain is locked in time via huge amounts of computational work, like cement being poured atop a foundation so nothing built upon top can be removed unless all affected blocks below also taken out.
15. No middleman fees
Since there is no intermediary bank involved with Bitcoin transactions, sending it to someone in a foreign country for example only costs pennies and doesn’t take days like if you were doing an international wire transfer via your bank.
Also since there are no middlemen then you have the potential to earn money by buying items lower than their selling price on different exchanges (called arbitrage).
For example if you live in India which has a $1 = Rs100 exchange rate while at the same time Canada had $1 = C$0.9 then you could buy something from Amazon in Canada using rupees then immediately sell it on an Indian website/marketplace as Canadian dollars for a 10% profit margin without any additional effort.
16. No restriction on use
With digital currencies like Bitcoin you can send money to anyone in the world free of charge from any computer with an Internet connection using just a private key (an address given to you by your wallet company) which acts as both your username and password and allows you to spend funds from said wallet.
17. Freedom of payment options
Also note that while all the governments around the world have accepted physical cash transactions as legal tender, no government has yet announced that they would follow suit with cryptocurrency meaning businesses are forced to accept it since there is no way around this without breaking the law (unlike credit cards or Paypal). This means if you don’t want a bank account then you can still for example, rent a car, book an Airbnb or live in a mansion by paying for all things and services that can be paid for with cryptocurrency.
It’s much more secure than cash. On September 2nd, 2016 was when the attack on Ethereum began when someone found a loophole in the code that allowed them to create infinite Ether out of thin air using recursive functions but since the Ethereum foundation caught this in an update released a day after, all was well.
19. Network effect
The more people that begin using a service or product then the more valuable said product becomes to its users because there is much more content and products available for them to enjoy.
20. Low transaction fees for P2P payments, because you cut out the middleman (or financial institutions)
Cons of Cryptocurrencies
Digital currency has massive benefits over traditional fiat currencies (government backed bills printed by mints) but there are also Pros and Cons of Digital Money. Some of these Cons include:
1. Requires lots of energy
Bitcoins and other digital currencies are secured by solving mathematical problems through a process called mining. This process is very easy to do on a computer that can handle it but because the calculations become more difficult as more coins are mined then people have to work together in pools utilizing their combined computing power to mine newer batches for profit.
Price fluctuations are common among different cryptocurrencies, this has resulted in complete crashes for some and is also a major source of risk even for most digital currencies. Investors often lose huge amounts of money before they exit from their positions!
There have been numerous instances when the prices of certain cryptocurrencies shot up or went down by more than 10% in a single day.
For instance in 2013 Bitcoin lost 20 percent to drop below $200, then another 40 percent to reach $100; In 2014 bitcoin halved again from $1000 to $500. At one point Etherium reached an all-time high of over $400 in February of 2017 and then dropped to $150 a few days later.
3. Not intrinsic value
Since electronic cash is not backed by any physical goods, currencies or assets then there’s no guarantee that in 10 years time it’ll have the same value as today. While this isn’t necessarily always a bad thing, when you’re purchasing something which has real world value like food or housing then that food or housing will still have value even if the currency you use to buy it loses its value.
This problem is currently being solved by these new cryptocurrency exchanges which allow people to trade fiat for digital currencies so they can store their money safely without worrying about the volatility. However this makes cryptocurrencies more like stocks in that they’re meant to be traded not held indefinitely like gold or silver (which are what real world assets should be used as a backing of long-term storage).
5. Security concerns
Cryptocurrencies have been plagued by security issues since the beginning. This has led to frequent cyber attacks resulting in theft or loss of funds held by cryptocurrency exchanges and users alike.
Recent examples include the so-called “51% network attack” that affected many coins in 2013 and the more infamous Mt. Gox hack that led to a massive loss of Bitcoins in 2014. While it is common for cryptocurrencies to recover from such attacks, investors who don’t have money reserves (or access) to wait out temporary problems will suffer losses as a result.
6. Regulatory uncertainty
Cryptocurrencies are also facing government regulations at the moment. However, there is no global consensus on how different nations should treat digital currencies and which regulatory framework they should use to govern them.
Regulators worldwide are still struggling to reach an agreement on this matter, which has created a lot of confusion for users and new cryptocurrency businesses alike who need regulatory clarity before they can make their minds whether or not to invest in the market, regulatory issues could also potentially make it harder for people to adopt digital currencies since they would need to deal with different bureaucratic procedures in every country they want to use cryptocurrencies.
7. Uncertainty of business models
There is also a lot of uncertainty regarding the survival and success of options trading, particularly when dealing with new companies that are doing initial coin offerings ICOs in order to collect the funds needed for their activities.
For starters, majority of these organizations do not have any previous track record on which potential investors can rely (except if they’re already established firms). So unless you know exactly what you’re investing your money into, you should probably avoid putting significant amounts into start-up businesses that deal with cryptocurrencies or other high-risk assets!
8. Risk of Poor Service
While some of these drawbacks are commonly shared by the majority of digital currency exchanges, there is no industry-wide consensus on which platform is “the best” or even if any of them offer real value to investors. This means that you would have to do your own research in order to find platforms that actually work and offer competitive prices.
After all, an exchange offering poor service (or charging extra fees) can potentially cost you more than standard market fluctuations; over time they can eat into a large chunk of your profit margins!
9. Exchanges May be Hacked
Another common drawback associated with cryptocurrency trading using online platforms is their vulnerability to hacking attacks, even though most reputable sites provide protection through SSL encryption and other useful security mechanisms, the fact remains that they would always remain targets for hackers who can easily breach their security and ruin people’s holdings.
10. Major Risks
In addition to such major risks, there are also a number of smaller issues associated with online trading:
Extensive research is needed before starting any trade in cryptocurrencies, it’s not something that should be done casually! Once you’ve decided on how much money you want to invest into digital currencies and established the timeframe for your investment, you should start by buying a reasonable amount of coins or tokens to test out trading and see how it works. After that, you can decide if you want to expand your portfolio further or take profits by selling some of your digital holdings.
For example, you need to monitor exchange rates carefully because slight changes in the value of different currencies could mean significant losses if you don’t properly adjust your spending
11. Lack of consumer protection
This is something you’ll never have to worry about when you use a bank. The government guarantees that if your money is stolen from the bank, they will reimburse it. But there are no laws in place right now that protect consumers who lose money due to lost passwords or hacked wallets etc. The USD value of all cryptocurrencies stolen today totals over $1 billion.
And since many cryptocurrencies are largely anonymous and decentralized in nature, it doesn’t really matter where you live: once those thieves get hold of your coins, they’re gone forever .
12. Risk associated with unknown miners
Most new cryptocurrencies are released through mining, several acceptable blocks are mined and the first one to solve a mathematical puzzle receives a reward (in the form of coins or transaction fees).
There’s nothing wrong with mining itself, but you have to be careful who mines the cryptocurrency. Most of them these days are GPU/CPU based which means it can take years before you see any returns on your investment.
But there is another type called ASIC-based mining where miners build dedicated hardware for mining that has just been released. However this type of mining poses several risks
13. Risk associated with unknown developers
Here’s something else that can be equally important:
How well known is the developer/team behind this cryptocurrency?
How transparent are they when it comes to updates (if any)?
Do they have a history of being honest?
You can ask yourself all the questions you want about a coin but until you get to know who’s behind it, it’s impossible to tell whether or not you are getting involved in something legitimate.
Frequently Asked Questions (FAQ) : Pros and Cons of Digital Money
What’s so great about cryptocurrency?
Cryptocurrency is a decentralized currency that removes the need for banks to mess with currencies.
Crypto networks are scalable making transactions are fast, secure and borderless across countries. Imagine a world where you can send money all over the globe in just seconds from your phone with no fee or hesitation at any time of day.
What are the advantages and disadvantages of digital currencies?
The pros and cons of digital money include being able to make payments anonymously without involving any third party like Western Union along with transferring funds anywhere around the world instantly.
A disadvantage might be how much power this technology gives those who control large amounts over small holders as they can manipulate prices on exchanges.
What are the pros of using Cryptocurrency?
2. Store of Value
4. Censorship resistant
5. Limited supply
6. Fast transactions
7. Immutable Ledger
10. Freedom of payment options
Is there a downside to Cryptocurrency?
Yes, These are a few downsides to cryptocurrency. They Include:
3. Requires lots of energy
4. Not intrinsic value
5. Risk associated with unknown developers
After looking at the Pros and Cons of Digital Money, If all this seems a bit too risky then don’t worry , it is! The whole idea behind cryptocurrency was to create a form of money that didn’t rely on any central authority or financial intermediary at all while also being instant and untraceable, both of which are pretty much impossible to achieve using standard currency.
It’s a nice idea to have no middleman involved in transactions but the reality is that are just not many cryptocurrencies out there today that manage to accomplish this goal without having significantly less value.
Digital money has a lot of potential when we look forward as opposed to backwards at traditional currency systems currently in place today. But this doesn’t mean that every one of the 10,000+ digital currencies created so far will end up being successful either given the fact that most are launched based on nothing more than hype and personal interest.
We Hope you now know The Pros and Cons of Digital Money, thanks for reading.