Even though cryptocurrencies emerged in 2009, many people still do not know in detail what they are. In this article, we will explain what they are and what are their advantages and disadvantages.
What are cryptocurrencies?
To begin with, you should know that cryptocurrencies are an intangible and decentralized means of payment alternative to traditional money. In other words, through these virtual currencies, we can carry out operations using digital encryption, which provides security, without the need for intermediaries.
How are they different from traditional currencies?
Cryptocurrencies do not materialize on paper or credit cards. In this case, the money is in virtual wallets, or databases, which is called the Blockchain. In these wallets, all the operations carried out by anyone who has crypto values are recorded.
Cryptocurrencies are still currencies, but digital. That means that they have the same use as any other physical currency. Thus, we can make payments between people. Different companies already allow you to buy with bitcoins, or other cryptocurrencies, on their websites.
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Advantages and disadvantages of cryptocurrencies
It is interesting to know what its benefits are, as well as its risks to delve into this new way of managing money.
In this sense, we have to point out that crypto values are characterized by being volatile. An element that is between the advantage and the disadvantage, since the user can double his gains from one day to the next, as well as he can also lose them quickly.
Advantages of cryptocurrencies
1. Cryptocurrencies are global currencies
These virtual currencies are not regulated by any government organization, such as the State, banks, financial institutions, or companies. That gives the possibility of being able to use them anywhere in the world.
For example, Bitcoin claims that “in the same way that no one controls the technology behind email, Bitcoin also has no owners.” Thus, this type is controlled by all its users. Therefore, although programmers improve their software, they cannot make a change without the consent of all customers.
2. Cryptocurrencies are safe
According to experts, counterfeiting or duplication of cryptocurrencies is impossible thanks to a sophisticated combination of proven cryptographic techniques. In this sense, each person has cryptographic keys that are necessary to carry out any digital operation.
3. Some cryptocurrencies are deflationary
Cryptocurrencies like Bitcoin or Litecoin have limited the issuance of their virtual currencies. In the case of Bitcoin, at 21 million and Litecoin at 84 million. That makes them deflationary cryptocurrencies as the publication of these digital currencies declines over time.
4. Cryptocurrencies have irreversible transactions
Other advantages are irreversible transactions. That is, if crypto values are used, no third party can cancel or modify a purchase already made. That is so because they are not regulated by a central body that can access them.
5. Immediacy characterizes cryptocurrencies
One of the advantages of e-commerce, for example, is its immediacy. If we have international clients, this payment method could significantly speed up the exchange process, especially between banks in countries that do not have treaties between them and have to go through a central bank, making payment processes delay several days.
6. They are transparent
All transactions made through Blockchain are public. The blockchain file is stored on multiple computers on a network, and not in one place. Thus, this type of storage allows it to be readable for all users, making it transparent and difficult to alter.
Disadvantages of cryptocurrencies
At the same time, we find a series of disadvantages in cryptocurrencies that may be the cause of their non-settlement in society and their mistrust of potential and future users.
1. Possible loss of money
One of its main dangers, and its riskiest feature, is that if you lose the private key to access your wallet, you lose all the money you had in it since it is virtual money. Therefore, it is advisable to have a backup of your portfolio to avoid this critical situation.
2. Changes and lack of regulation
Its regulation is currently being worked on, and there are several directives of the European Union pending approval.
In some European countries, new regulations are expected. In this sense, some of the state agencies in Europe indicate that “concerning the fiscal risks observed in operations carried out with cryptocurrencies,” the actions will continue based on the general guidelines contained in the Tax and Customs Control Plan.
3. Mistrust of potential users
Although the trend of cryptocurrencies has been growing in recent years, many companies have not yet dared to use this virtual currency. That is mainly due to the risk of price fluctuations, and ignorance of the benefits that cryptocurrencies can bring.
4. Necessary internet connection
To have the money, you need to have access to the internet because everything is handled digitally.
5. Frequent highs and lows
Cryptocurrencies are valued by supply and demand, so there can be highs or lows in their price.
6. Countries that banned cryptocurrencies
Countries such as Bolivia, Vietnam, Taiwan, and China have banned the use of cryptocurrencies.
Now that you know the advantages and disadvantages of cryptocurrencies, you can check out different platforms to start investing.
Currently, the number of businesses that accept cryptocurrencies as payment is increasing. Although the Blockchain and all the digital currencies that have emerged thanks to this technology are relatively recent, the growth rate is quite fast. Most of the top-rated companies accept or have, at some point, welcomed cryptocurrencies as a means of payment.
If we compare the advantages and disadvantages that blockchain technology offers us as a new financial system, it can be positive for the massive implementation of this technology for commercial purposes. Also, governments and institutions are studying how to include the Blockchain in their national accounting systems. And even some countries plan to create their official cryptocurrency. Regardless of the advantages and disadvantages, it will be necessary to focus on trade rather than speculation.