What Is Cryptocurrency?
To begin with, a cryptocurrency is a type of digital or virtual money. It serves just as ordinary money, such as dollars, pounds, euros, yen, etc. But it has no physical counterparts — banknotes or coins that can be carried around, that is, the cryptocurrency exists only in electronic form.
It can be said that Cryptocurrency is virtual money based on software. When you purchase cryptocurrency, you purchase a digital asset based on an algorithm. Unlike centralized currency, which is government controlled, cryptocurrency is decentralized.
Also known as “crypto,” cryptocurrency uses blockchain technology to record transactions in a ledger system. The most important aspect of this technology is that it can be viewed publicly but it can’t be changed or controlled by any single entity, making cryptocurrency secure for online transactions and nearly impossible to counterfeit.
Pros and Cons of Cryptocurrency
There’s no shortage of financial media coverage on the rapid growth and popularity of cryptocurrency. But like other types of financial assets, there are some significant risks and disadvantages that come along with the growth potential and benefits.
Pros of Cryptocurrency
There is no fraud and scam can happen in the cryptocurrency investment. Unlike other payment methods like online banking, credit cards, or gift cards payment can never decline with cryptocurrency. Payment always reaches the receiver in just a few seconds. There can be no manipulation happen with the cryptocurrency because it is secure and digital.
• Fast and Inexpensive
It only takes a few minutes to send any amount of money. Regardless of the amount or the destination. Making a move to another part of the world through your bank can be extremely expensive. When done in cryptocurrency, the cost is either negligible or non-existent.
A major pro of cryptocurrencies is that they are mainly decentralized. Many cryptocurrencies are controlled by the developers using it and those who have a significant amount of the coin or by a corporation to develop it before it’s released into the market. The decentralization helps keep the currency monopoly free and in restraint, so no organization can determine the flow and so the worth of the coin, which, in turn, will keep it stable and secure, unlike fiat currencies which are controlled by the Government.
• Absolute Anonymity
Cryptocurrency is completely anonymous, which is great for those that value their online privacy and are wary of handing over too much of their digital data. While the additional layer of security that anonymity provides is an excellent benefit, it has also led to the inevitable adoption of the technology by the criminal fraternity.
Cons of Cryptocurrency
• Price volatility
While quick gains are a big attraction to crypto for many interested investors, there is also potential for fast and extreme declines in value. A recent example is Bitcoin’s 50% price drop in just two months from April to June 2021.
• Chance of Performing Illegal Activity
Because bitcoin transactions have a high level of security and anonymity, it is difficult for the authorities to track down any user by their wallet address or keep track of their data. However, Bitcoin has previously been used to conduct a range of illicit operations, including purchasing narcotics on the dark web. In addition, some people utilize cryptocurrency to convert their illegally obtained money through a trustworthy mediator, concealing its source.
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.
• Adverse Effects of mining on the environment
Mining cryptocurrencies require a lot of computational power and electricity input, making it highly energy-intensive. The biggest culprit in this is Bitcoin. Mining Bitcoin requires advanced computers and a lot of energy. It cannot be done on ordinary computers. Major Bitcoin miners are in countries like China that use coal to produce electricity. This has increased China’s carbon footprint tremendously.
As you read, cryptocurrency has both pros and cons, so you have to be careful while you are investing or trading with cryptocurrency. Before investing in cryptocurrency you should have all pros and cons in your mind. Especially mentioned above, you can’t ignore these pros and cons because these are major and critical.