With the industrialization and inclusion of technology, digital currencies are winning in most cases over other currencies. One such currency that is in trend is bitcoin. Many of us understand what this well-known terminology is. The only puzzling thing is Cryptocurrency. One should know about its pros and cons. Is it worth investing in 2021? If you have such queries, get them answered here. Below you will find the major Advantages and Disadvantages of Cryptocurrency in 2021. So, let’s start.
Advantages and Disadvantages of Cryptocurrency
Advantages of Cryptocurrency
1. Protection from inflation –
Inflation has caused various currencies to get their importance and value declined with time. But in the case of cryptocurrencies, every cryptocurrency is released with a fixed amount at the time of its launch. The source code stipulates the value of any coin; for example, there are only a total of 21 million Bitcoins released on the globe. So, with the rise in demand, its value will grow which will keep up with the market and, prevent inflation.
2. Self-governed and managed –
Governance and maintenance is a major factor for the development of any currency. All the trade & cryptocurrency transactions are stored by miners/developers on their hardware. They actually get the transaction fee as an award for doing so. Since the miners/developers are getting paid for this job, they keep transaction records up-to-date and accurate. It is necessary to keep the integrity of the cryptocurrency and in the case of cryptocurrencies, the records are decentralized.
3. Secure and private –
Privacy and security have always been one of the major concerns toward cryptocurrencies. The blockchain ledger is actually based on complex mathematical puzzles, which are really hard to decode. This gives cryptocurrency transactions a more secure environment than conventional electronic transactions.
4. Currency exchanges can be done easily –
Cryptocurrency can be bought using the US dollar, European euro, Indian rupee, British pound or Japanese yen. Cryptocurrency wallets and exchanges can be used to convert one currency into the other by trading in cryptocurrency, across various wallets, and with minimal transaction charges.
5. Decentralized –
A main advantage of cryptocurrency is that they are decentralized. The decentralization helps keep the cryptocurrency monopoly free. And that is why there are no chances that no organization can define the flow and the value of the currency. It will keep it stable and secure, unlike other fiat currencies. (Fiat currencies are government-issued currencies that are controlled by the government.)
6. Cost-effective mode of transaction –
One of the major advantages of cryptocurrency is that it can be used to send money across borders. With cryptocurrencies, the transaction fees paid by an individual are reduced to a negligible or zero amount. It is a successful replacement of third parties, like VISA or PayPal, that are required to verify a transaction. Cryptocurrency users are not required to pay any additional transaction fees.
7. A fast way to transfer funds –
Cryptocurrencies have always kept themselves as an optimal solution for transactions. Transactions, Whether international or domestic, every transaction in cryptocurrencies, is lightning-fast. Here, the verification requires very little time to process and there are very few barriers to cross.
Disadvantages of Cryptocurrency
Can be used for illegal transactions –
As Cryptocurrency is highly private and secure for cryptocurrency transactions, it’s hard for government organisations to track down any transaction made by a user. Bitcoin has been adopted as a mode of transferring money in a lot of illegal activities in the past, such as buying or selling drugs on the dark web. Cryptocurrencies are also practised by some to convert their illegally obtained money through a clean intermediary, and to hide its source.
2. Data losses can cause financial losses –
Virtually untraceable source code, impenetrable authentication protocols and strong hacking defenses are making it safer to put money in the form of cryptocurrencies than physical cash or bank vaults.
But what if any user loses the private key to their wallet, there’s no way to get it back. The wallet will remain locked forever with the number of coins stored inside it. This mistake can be responsible for the huge financial loss of the user.
3. Decentralized but still controlled by some organization –
Cryptocurrencies are known for their feature of being decentralized. But, the flow and value of some Cryptocurrencies are still controlled by their developers and some other organizations. These holders can control the coin for large swings in its actual value. Even hugely traded coins can be easily influenced by these manipulations like Bitcoin, whose price doubled many times in 2017.
4. Some coins not ready for other fiat currencies –
There are some cryptocurrencies that can not be easily traded in some fiat currencies. This actually forces users to convert their currencies into one of the major currencies that are acceptable in cryptocurrencies exchanges. This applies to only a few cryptocurrencies. But due to this extra transaction fees are added in the process, requiring unnecessary money.
5. Adverse Effects of mining on the environment –
Mining cryptocurrencies is highly energy-intensive, as it requires a lot of computational power and electricity input. The biggest culprit in this is Bitcoin. Mining Bitcoin requires a lot of energy and advanced computers. It cannot be done using ordinary computers. Major Bitcoin miners are in nations like China that utilise coal to generate electricity. This has tremendously increased China’s carbon footprint.
6. Susceptible to hacks –
Although cryptocurrencies are very reliable and secure, exchanges are not that safe and secure. Most exchanges normally store the users’ wallet data to operate their ID properly. This data can be hijacked by hackers, giving them entrance to a lot of user accounts. After getting access, these hackers can quickly transfer funds from all those accounts.
Some cryptocurrency exchanges, like Mt Gox and Bitfinex, have been hacked plus Bitcoin has been stolen in thousands and millions of US dollars in the past years. Most exchanges are highly secured nowadays, but there is always a risk of a big hack.
7. No refund or cancellation policy –
If there is a disagreement between concerning parties, or if an individual mistakenly sends currency to a wrong wallet address, then the currency cannot be retrieved. This can be used by many people to cheat other users.