We’ve all been hearing about this Bitcoin thing and that the “age of the cryptocurrency is here” blah blah blah but what is this new found technology? and what are its advantages and disadvantages. To start things off let me explain what a crypto currency is and why it might potentially change the way at how we look at money.
If you know how the current financial system works, you might know how it entirely revolves around trust. Trust is such a central part to a currency’s adoption and its usage. Trust is found everywhere in the financial system. People trust the governing bodies, governments trust each other for lending and money in this system is a very peculiar thing. If a government wants to print currency it does so with a backing of gold in its vaults but there is only so much gold. So the current financial system relies on trust. Every time more currency is printed it is backed up by nothing, it’s purely based on trust and every time more currency is printed the value of the currency you hold, decreases. Which is what inflation is all about.
Crypto currency on the other hand is limited in quantity and its value fluctuates according to demand and supply. It is entirely decentralized and it has no government body backing it. Transactions are all carried out by a technology called block chain which uses multiple computers to run encrypted transactions. These computers can be anywhere in the world and as an allowance for running these transactions, the people who run these transactions are given crypto currencies as payment for their services. That is how more currency enters the system.
The transactions are all entered in an universal ledger which is updated on all the computers that run these transactions as soon as a transaction is made and that’s how trust is built into the system. No one person runs a block chain and it isn’t owned by any one entity or body, which is why it’s a genius idea because no one controls it. So what are the advantages to such a system and with advantages there must also come certain disadvantages, right? So, let me list them down for you.
Pros of cryptocurrency:
Its cost effective: Transferring money through crypto currency is very cheap and cost effective. Most means of currency transfer we have today come with transactional fees that banks charge, but the cost to transfer money through crypto currency is almost nil.
Quick and easy payments: Making payments through crypto currencies are almost instantaneous and don’t take a lot of time to process like traditional methods do. Even intercontinental transactions can take place instantaneously.
Safe and secure transactions: Crypto based transactions have very strong encryption and therefore are near impossible to break and this enables more security than even traditional methods can offer.
Easy Access: Anyone with an internet connection can make transactions using crypto currencies.
No middle man or 3rd party: Crypto currencies take the middle man out of storing your money. Your account is held in the internet and no one controls it. No bank can choose to lock you out of your own account. Though transactions rely on a middle man to process, the middle man changes every time and you aren’t dependent on any one middle man to do transactions.
Anonymous and private: You don’t need to share your personal details to anyone to get into crypto currencies which makes it very private. Even though the transactions you do are displayed to the world, no one knows it’s you, it’s only the value that’s readable. Your transactions remain entirely anonymous and untraceable.
Cons of cryptocurrency:
Hard to grasp and understand: Crypto currencies are very new and the fact that it’s a very challenging technology to understand brings with it a learning curve to get into. It challenges the way you look at money and how it works, which cause some serious misinterpretations of what crypto currency is. Also the lack of its understanding leads people open to hacking or losing their money in some other way.
No way to reverse payment: Once you transfer someone money through a crypto currency it’s not possible to get it back. So, if you sent the wrong person money, then you’re screwed and you can never get that money back. You can request the person to send the money back but if they don’t comply, then you just have to forget your money.
Cannot be retrieved if lost: If you forget your username or password then you can’t just hit forgot password/username and get it back. It just doesn’t work that way. Crypto’s are designed to be very secure and this is a byproduct of that. So, you better not lose your password or username or its bye bye to your money.
Uncertainty: Crypto’s being new are uncertain and as a result are not as widely accepted and adopted yet. Going to a Starbucks and getting a pumpkin spice latte and paying through Bitcoin is still quite far away in the future.
Paul Lynne, Editor at ReviewMyThing, brings journalistic expertise to product reviews, offering concise insights across various categories. Passionate about empowering consumers, Paul’s analyses help readers make informed choices. Beyond work, he enjoys travel and gourmet coffee.