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Cryptocurrency is a decentralized digital currency transferred directly between users and a public ledger confirms all transactions. The digital payment system used for the transaction employ cryptographic algorithm and functions to ensure anonymity of the users, security of the transactions, and integrity of the payment systems. Instead of trust, the principle of the authenticity of transactions is cryptographic proof. Though seen as a disruption for traditional banking and financial institutions, it has gained significant traction over the last decade. Bitcoin, created in 2009, was the first decentralized cryptocurrency. Since then, several companies have created numerous cryptocurrencies. At present, 969 cryptocurrencies exist across the globe, with a total market capitalization of 116 billion USD.
Now, here are the advantages of Cryptocurrency in financial medium:
Transactions
In business dealings, brokers, agents, and legal representatives can add significant complication and expense to what should otherwise be a straightforward transaction. There’s paperwork, brokerage fees, commissions, and any number of other special conditions which may apply.
One of the advantages of cryptocurrency transactions is that they are one-to-one affairs, taking place on a peer-to-peer networking structure that makes “cutting out the middle man” a standard practice. This leads to greater clarity in establishing audit trails, less confusion over who should pay what to whom, and greater accountability, in that the two parties involved in a transaction each know who they are.
Asset Transfers
One financial analyst describes the cryptocurrency blockchain as resembling a “large property rights database,” which can on one level be used to execute and enforce two-party contracts on commodities like automobiles or real estate. But the blockchain cryptocurrency ecosystem may also be used to facilitate specialist modes of transfer.
For example, cryptocurrency contracts can be designed to add third party approvals, make reference to external facts, or be completed at a specified date or time in the future. And since you as the cryptocurrency holder have exclusive governance of your account, this minimizes the time and expense involved in making asset transfers.
More Confidential Transactions
Under cash/credit systems, your entire transaction history may become a reference document for the bank or credit agency involved, each time you make a transaction. At the simplest level, this might involve a check on your account balances, to ensure that sufficient funds are available. For more complex or business-critical transactions, a more thorough examination of your financial history might be required.
Another one of the great advantages of cryptocurrency is that each transaction you make is a unique exchange between two parties, the terms of which may be negotiated and agreed in each case. What’s more, the exchange of information is done on a “push” basis, whereby you can transmit exactly what you wish to send to the recipient – and nothing besides that.
This guards the privacy of your financial history and protects you from the threat of account or identity theft which is greater under the traditional system, where your information may be exposed at any point in the transaction chain.
Transaction Fees
You’ve no doubt reading your monthly account statements from the bank or credit card company, and balked at the level of fees imposed for writing checks, transferring funds, or breathing in the general direction of the finance houses involved. Transaction fees can take a significant bite out of your assets – especially if you’re performing a lot of transactions in a month.
Since the data miners (remote and separate computer systems) that do the number crunching which generates Bitcoin and other cryptocurrencies receive their compensation from the cryptocurrency network involved, transaction fees usually don’t apply.
There may be some external fees involved if you engage the services of a third-party management service to maintain your cryptocurrency wallet, but another one of the advantages of cryptocurrency is that they are still likely to be much less than the transaction charges incurred by traditional financial systems.
Greater Access to Credit
Digital data transfer and the internet are the media facilitating the exchange in cryptocurrencies. So these services are potentially available to anyone who has a viable data connection, some knowledge of the cryptocurrency networks on offer, and ready access to their relevant websites and portals.
It’s estimated that there are currently 2.2 billion individuals across the world who have access to the Internet or mobile phones, but don’t currently have access to traditional systems of banking or exchange. The cryptocurrency ecosystem holds the potential to make asset transfer and transaction processing available to this vast market of willing consumers – once the required infrastructure (digital and regulatory) is put in place.
Easier International Trade
Though largely unrecognized as legal tender on national levels at present, cryptocurrencies by their very nature are not subject to the exchange rates, interest rates, transactions charges, or other levies imposed by a specific country.
And using the peer-to-peer mechanism of the blockchain technology, cross-border transfers and transactions may be conducted without complications over currency exchange fluctuations, and the like.
Individual Ownership
In a traditional banking or credit card system, you effectively turn stewardship of your funds over to a third party that can exercise the power of life or death over your assets. Accounts may be closed without notice for infringements of a financial institution’s Terms of Service – requiring you as the account holder to jump through hoops in order to get yourself back into the system.
Perhaps the greatest of all advantages of cryptocurrency is that unless you’ve delegated management of your wallet over to a third party service, you are the sole owner of the corresponding private and public encryption keys that make up your cryptocurrency network identity or address.
Adaptability
There are currently over 1200 unique cryptocurrencies or altcoins in circulation worldwide. Many are quite ephemeral, but a significant proportion have been created for specific use cases that illustrate the flexibility of the cryptocurrency phenomenon.
For example, there are “privacy coins” which help mask your identity on the blockchain, and supply chain tokens which can facilitate supply chain operations for various types of industries.
Strong Security
Once a cryptocurrency transfer has been authorized, it can’t be reversed as in the case of the “charge-back” transactions allowed by credit card companies. This is a hedge against fraud which requires a specific agreement to be made between a buyer and seller regarding refunds in the event of a mistake or returns policy.
Finally, the strong encryption techniques employed throughout the distributed ledger (blockchain) and cryptocurrency transaction processes are a safeguard against fraud and account tampering, and guarantors of consumer privacy.
Also, there are DISADVANTAGES of these Cryptocurrencies which are:
Web crimes
The companies, which backs cryptocurrency encounters a common problem of hacking. Recently, one such company, Tether, lost bitcoins worth millions of US dollars. These instances show that cryptocurrency lacks security factors compared to fiat money.
Online black market
Drug trade of dark markets, nowadays, uses cryptocurrency for illegal supplies. The United States consider bitcoins as virtual assets. In such countries, the law enforcement agencies find it difficult to put a stop to the online drug trade or utilization of bitcoins earned from these trades. Improper regulation of cryptocurrency enhances online illegal trade.
Economy instability
Cryptocurrencies exchange takes place over the Internet and hence, is outside the government financial institutions. Due to this, they have the unique potential of challenging the existing system of currency and payments.
Inexperience
Economies across the world have been using fiat currency for ages. Today, every nation knows about the causes of slowdown, recession, stagnation, stagflation, and growth. Because, in past, one or more nation has experienced it and they can predict the capability of an economy according to the current situation. But, cryptocurrencies are still wrangling at the experimental stage. Such inexperience induces difficulty for the government to make provisions for cryptocurrency regulation.
Low usage
The lack of awareness among common people has resulted in the limited number of transactions using cryptocurrency. Owing to its unpredictable valuation, a small number of businesses use them. At the same time, where people easily adapt the physical form of money, the acceptance of cryptocurrency among masses is a major problem.
Many western countries treat cryptocurrency as property and impose capital gains tax on it. In addition, governments should encourage the development of supervision ecosystem that assists in tracking illegal activities. To banish the limitations of cryptocurrency, one realistic approach is using it along with fiat money. The fiat currency can make use in paying for basic goods and services, where cryptocurrency can find the use for business purposes. And the further success of the cryptocurrencies depends upon the devised regulatory frameworks.
But in all these points, we know that, Cryptocurrency has helped so many lives. So, let's not contribute to the decline of Cryptocurrency in our today's world.
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References
Finjan Team
Positive negative effects 2018