Brandi Reynolds, CAMS-Audit
Cryptocurrency today has become a breaking topic to discuss anywhere, along with its pros and cons. Despite the fact that it is a popular investment type, there are also some drawbacks around failed digital currencies that have caused the users to cut their losses. In this article, we will dig more in-depth about the pros and cons of cryptocurrency.
The Present Situation
We are all aware that the value of currencies varies. This is especially noticeable from travel abroad. This is possibly one reason cryptocurrency has become so popular.
Investing in cryptocurrency is actually quite similar to the process of exchanging your money in another country. Bitcoin, Ether, Litecoin, are just some examples of “cryptocurrencies” that have been around for quite some time now.
An important thing to be noted is, exchanging any type of currency is basically built on shared trust. For example, we value US dollars because we know that we can buy goods or services with this currency.
Now the big question is, can you trust cryptocurrencies? Would you jump into the world of crypto? To make you confident in answering these questions, you need to get a better understanding of cryptocurrency.
What Is Cryptocurrency?
As defined by Blockgeeks.com, Cryptocurrency is an internet-based medium of exchange which uses cryptographical functions to conduct financial transactions.
At the moment, there are many types of cryptocurrencies. So far, Bitcoin comes up as the most popular one, then followed by Litecoin, Ether, Bitcoin Cash, and Ripple. Along with the growth of its popularity, fintechs and financial institutions have been getting interested in a slice of the crypto pie. In fact, the latest one we can see is Facebook, which created its own cryptocurrency named Libra.
Cryptocurrency uses the cryptographic methods and complicated coding systems to encrypt subtle information during data transfers. This method will protect your funds along with personal information on a completely different level. And the cool thing about cryptocurrency transactions is that they cannot be duplicated, and thus, they can be easy to tracked and identified as they are traded.
The buzz about how people are making (or losing!) a great amount of their money by investing in cryptocurrencies have been filling the Internet and you might think that this is a modern-day gold rush. However, cryptocurrencies have been present for more than 10 years. The earliest cryptocurrency was known as Bitcoin. This one was created in 2009 by an unidentified person or group of people, who later on became famous by the name Satoshi Nakamoto.
How Does Cryptocurrency Work?
The most exciting thing about Cryptocurrencies might be the fact that they are exchanged from person to person on the Internet without requiring any intermediary such as a bank or government. These types of currencies are decentralized where no government or bank controls how they are generated, what their value is, or even how they are exchanged.
The entire operations of Cryptocurrencies are performed through blockchain technology. This blockchain will then be a public record of all of the transactions that have been conducted in a specific cryptocurrency.
What Can You Buy with Cryptocurrency?
Up until now, most people (whether businesses or individuals) still view cryptocurrencies as a promising investment. On the other hand, the spending of cryptocurrency could become more popular as these currencies keep on getting trust. In fact, there are some online retailers, such as overstock.com, that are willing to accept cryptocurrencies as a payment method.
The Pros of Cryptocurrency
Cryptocurrency is completely different because it is decentralized. This means, it resists the control of central authority. Decentralization is the defining characteristic of blockchain technology and cryptocurrencies, such as Bitcoin.
Cheaper Transaction Fees
There are often abundant fees when conducting transactions with a financial institution. This is another reason to say that cryptocurrency will work better than the traditional system. In the world of crypto, you are essentially cutting out the intermediaries, and thus, you are saving your money on those additional fees. Cryptocurrency even has low transaction costs compared to other digital payment methods like PayPal.
In addition to this, you would also be able to make various international payments without relatively high fees because, it is essentially the same process.
With the evolution of technology that keeps on growing, there are so many ways that identities can be compromised.
In the crypto world, all of your transactions and identities are strictly secured. But you are still vulnerable to hackers and cybercriminals as all the transactions in cryptocurrency are permanent. Once the transaction is started, your funds will stay in an indeterminate state while entering the blockchain by miners.
The Cons of Cryptocurrency
The cryptocurrency market is highly volatile, which can lead to great gains or losses… the value of coins can change wildly in a short amount of time. Bitcoin hit record highs in 2017, at nearly $20,000 per coin. As of August 2020, it is traded around $11,000 per coin.
The Internal Revenue Service (IRS) has indicated that “virtual currency transactions” are taxable by law just like transaction in any other property. Therefore, taxpayers may have to report cryptocurrency transactions on their tax returns. It can be unclear as to how to report the value and what taxes should be paid on them.
Not Accepted Everywhere
There is definitely an appeal to transact in cryptocurrency due to the low transaction cost; however, cryptocurrency payments are not widely accepted…at least not yet. Cryptocurrency is only accepted by certain vendors. An article published by buybiconworldwide.com names eleven major companies that accept Bitcoin, the most widely accepted cryptocurrency.
Cryptocurrencies such as Bitcoin, Ether, and other types of cryptocurrency are the main payment assets for dark web transactions. Criminals like the privacy that is afforded to them with the using cryptocurrency, similar to the benefits of paying with “cash”. There have been notable cases where cryptocurrency has been utilized for money laundering, drug trafficking, and other illegal activity.
With the COVID-19 Pandemic, it is becoming increasingly apparent that there is a place for cryptocurrency in the mainstream, especially as cryptocurrency is being seen for its ability to combat poverty and oppression. But, do these pros outweigh the cons?
Any type of investment surely has its pros and cons, and cryptocurrency is no exclusion in this regard. So, if you are getting excited to invest funds in Bitcoin, or any other form of cryptocurrency, the first thing is to make sure that you make an informed decision.