Explaining Cryptocurrency with Investment Benefits
Explaining Cryptocurrency with Investment Benefits and Drawbacks: A cryptocurrency is a type of digital or virtual currency that uses encryption to protect it from counterfeiting or duplicate spending.
Blockchain technology, a distributed ledger enforced by a dispersed network of computers, is the foundation of many cryptocurrencies decentralized networks.
The fact that cryptocurrencies are often not issued by any central authority makes them potentially impervious to intervention from or manipulation by governments.
Here are a few benefits and drawbacks of cryptocurrency.
Benefits of Cryptocurrency
In terms of money, cryptocurrencies represent a brand-new, decentralized paradigm.
- In this system, transactions between two parties are governed by trust rather than by centralized intermediaries like banks and financial institutions.
- In light of this, a system based on cryptocurrency eliminates the chance of a single point of failure, such as a major bank, causing a chain reaction of crises to occur all over the world, similar to the one that was brought on in 2008 when American institutions failed.
- With the use of a trusted third party like a bank or credit card provider eliminated, the direct movement of money between two parties is making easier by cryptocurrencies. Public keys, private keys, and other incentive schemes, like proof of work or proof of stake, are using to secure such decentralized transfers.
- Cryptocurrency transfers between two transacting parties are quicker than traditional money transfers since they don’t employ third-party intermediaries. An excellent illustration of such decentralized transfers is flash loans in decentralized finance.
- These loans can be executing instantly and are using in trading because they are doing without supporting collateral.
- Investments in cryptocurrencies can be profitable. Over the past ten years, the value of cryptocurrency markets has surged, reaching approximately $2 trillion at one time. Bitcoin had a market value of more than $550 billion as of May 2022.
- One of the most well-known use cases for cryptocurrencies is being testing in the remittance industry. At the moment, cryptocurrencies like Bitcoin act as intermediary currencies to speed up international money transfers.
- As a result, a fiat currency is transforming into Bitcoin (or another cryptocurrency), transported across international boundaries, and then converted back into the target fiat currency. This technique simplifies and lowers the cost of the money transfer process.
Drawbacks of Cryptocurrency
- Cryptocurrencies are essentially pseudonymous, despite the fact that they advertise themselves as being anonymous. They leave a digital footprint that can be analyzing by organizations like the Federal Bureau of Investigation (FBI). This makes it possible for governments or federal agencies to monitor the financial activities of regular people.
- Criminals are increasingly using cryptocurrencies for undesirable tasks including money laundering and illegal transactions. It is already widely knowing about Dread Pirate Roberts, who operating a narcotics trade on the dark web. Additionally, cryptocurrency has grown to be a favorite among hackers who utilize it for ransomware operations.
- The wealth of cryptocurrencies is supposing to be dividing among multiple parties on a blockchain, making them theoretically decentralizing. Ownership is actually very concentrating. For instance, MIT researchers discovered that only 11,000 investors held nearly 45% of the rapidly increasing value of Bitcoin.
- One of the fallacies of cryptocurrencies is that anyone with a computer and an Internet connection can mine them. However, mining well-known cryptocurrencies use a lot of energy, perhaps as much as entire nations do.
- Due to the high energy costs and unpredictable nature of mining, the industry is now dominating by huge corporations with billion-dollar annual revenues. 10% of miners account for 90% of their mining capacity, according to MIT research.
- Although the blockchains that power cryptocurrencies are very secure, other crypto storage spaces like exchanges and wallets are vulnerable to hacking. Over the years, numerous cryptocurrency exchanges and wallets have been hacking, sometimes leading to the theft of “coins” valued at millions of dollars.
- The price of cryptocurrencies traded on open marketplaces is unstable. Bitcoin’s value has fluctuated sharply, reaching a high of $17,738 in December 2017 and a low of $7,575 in the months that followed.
- Thus, some economists think that cryptocurrencies are a bubble or craze that will pass quickly.
Also Read: Making sense of Bitcoin, Cryptocurrency, and Blockchain
