Cryptocurrency is on its way to garnering world acceptance, possibly also as a parallel or an alternative currency system. This digital currency has numerous types and platforms, with bitcoin heading the entire space. Bitcoin has grown at almost 400% in the past 6 months and has opened up unimaginable possibilities. Despite its popularity, the concept of cryptocurrency is still unknown to a large part of the population and its misconceptions have taken over to obnoxious extents.
What is Cryptocurrency?
A cryptocurrency (or "crypto") is a digital currency that can be used to purchase goods and services, but it is secured by an online ledger and strong cryptography.
How do Cryptocurrencies work?
The technology that enables cryptocurrency to function is Blockchain. Blockchain is a decentralized technology that manages and records transactions across many computers. The security of this technology is part of its appeal. Blockchain and related technology, according to many experts, will disrupt many industries, including finance and law.
Why are cryptocurrencies so popular?
For a variety of reasons, cryptocurrency supporters are drawn to it. Here are a few of the most well-known:
- Supporters see cryptocurrencies like Bitcoin as the currency of the future, and they're rushing to buy them before they become more valuable.
- Some supporters like the fact that cryptocurrency frees central banks from controlling the money supply since central banks tend to devalue money overtime via inflation.
- Other supporters support the blockchain technology that underpins cryptocurrencies because it is a decentralized processing and recording system that is potentially more secure than traditional payment systems.
- Some speculators are interested in cryptocurrencies since they are increasing in value, yet they are uninterested in the currencies' long-term acceptance as a means of money transfer.
ADVANTAGES OF CRYPTOCURRENCY
- Protection from inflation:
Inflation has caused the value of many currencies to depreciate over time. Almost every cryptocurrency is published with a fixed sum at the time of its launch. The sum of any coin is specified in the source code; for example, there are only 21 million Bitcoins available in the world. As a result, as demand rises, its value rises as well, keeping pace with the market and preventing inflation in the long run.
Self-governed and managed:
Any currency's governance and maintenance are critical to its development. Developers/miners are rewarded for storing cryptocurrency transactions on their hardware by receiving the transaction charge. Since the miners are compensated for their work, they keep transaction records correct and up-to-date, ensuring the cryptocurrency's credibility and decentralizing the records.
- Currency exchanges can be done easily:
Cryptocurrencies' privacy and protection have always been a big concern. The blockchain database is made up of a series of difficult-to-solve mathematical puzzles. As a result, cryptocurrency transactions are more reliable than regular electronic transactions. Cryptocurrencies use pseudonyms that are unconnected to any user, account or stored data that could be linked to a profile for better protection and privacy.
- Decentralized:
One of the key advantages of cryptocurrency is that it is mostly decentralized. Many cryptocurrencies are owned by the creators who use them and others who own a large amount of the coin, or by a company that develops them until they are released into the market. Unlike fiat currencies, which are dominated by the government, decentralization helps keep the currency monopoly free and in check so that no single organization can determine the flow and value of the coin. This, in turn, keeps it safe and secure.
- Cost-effective mode of transaction:
Sending money across borders is one of the most popular uses of cryptocurrencies. The transaction fees charged by a user are reduced to a marginal or zero-sum with the support of cryptocurrency. It does so by removing the need for third-party verification, such as VISA or PayPal. This eliminates the need for any additional transaction fees.
DISADVANTAGES OF CRYPTOCURRENCY
- Can be used for illegal transactions:
Since cryptocurrency transactions are so private and safe, it's difficult for the govt to trace down or monitor any user-supported wallet address. Bitcoin has previously been used as a way of transferring money during a sort of illicit transaction, including the acquisition of medicine on the dark web. Some people use cryptocurrency to mask the origins of their illegally gained money by converting it through a trustworthy intermediary.
- Data losses can cause financial losses:
The designers wanted to make practically untraceable source code, solid hacking protections, and impenetrable authentication protocols. Putting money in cryptocurrencies, rather than actual cash or bank vaults, would be better. However, if a user loses their wallet's private key, there are no ways to recover it. The wallet, also because of the number of coins inside, is going to be kept safe. Thus, leading to the user’s loss.
- Decentralized but still operated by some organization:
Cryptocurrencies are well-known for their decentralized nature. However, the manufacturers and a few companies still regulate the flow and volume of some currencies on the market. These investors can manipulate the coin's price to achieve massive price changes. Also, heavily traded cryptocurrencies, like Bitcoin, which doubled in value repeatedly in 2017, are susceptible to these manipulations.
- Adverse Effects of mining on the environment:
Cryptocurrency mining necessitates a lot of computing power and electricity, making it a very energy-intensive process. Bitcoin is the main perpetrator of this. Bitcoin mining necessitates powerful computers and a lot of resources. It's impossible to do on a regular machine. Bitcoin miners are concentrated in countries where coal is employed to get electricity, like China. China's carbon footprint has risen significantly as a result of this.
- Susceptible to hacks:
While cryptocurrencies are extremely secure, exchanges are not. Most exchanges save user wallet data to properly operate their user ID. Hackers might steal this information, giving them access to an outsized number of accounts. These hackers can easily move funds from those accounts once they need to gain entry. Some exchanges, like Bitfinex and Mt Gox, are compromised in recent years, and Bitcoin worth thousands to many dollars has been stolen. While most exchanges are now extremely stable, another hack remains an opportunity.
Yes, cryptocurrency has immense potential and its popularity and diverse use cannot be denied. At the same time, ways to reduce the risk and channelize the extreme uncertainty need to be found before the world is freely allowed to use cryptocurrency in any transaction on the face of Earth. All in all, though crypto supposedly seems to have a very bright future, our swiftness and ability to deal with such an instrument will prove to be the make or break situation.
