As the world is going through a financial transformation over the last decade or so, the role played by digital currencies or cryptocurrencies cannot be ignored. Almost all traders, merchants, brokers and investors who were dealing in forex, shares, bonds, mutual funds, commodities and precious metals, have now shifted their focus on cryptocurrency and crypto assets. It is mainly because of the high returns and profit margins it helps generate in a short time frame. But, it certainly has its own set of benefits and challenges, which we’re going to discuss in this article.
What is Cryptocurrency and How Does it Work?
It is a digital currency, which is used to buy goods and services, especially virtual real estate, drugs, stocks, commodities, make insurance payments, settle debts, etc. provided the seller/vendor accepts this form of real-time global payment or transaction. It is carried out via different crypto exchanges and crypto payment gateways like CoinBase, Coinify, Biance, UniPayment, etc. iIn fact, for performing a crypto transaction, you also need to have a digital wallet with an address, through which you accept, as well make payments.
It is basically a decentralized form of transaction, meaning the government does not have any control or restriction over it. It is NOT regulated by federal authorities, thus immune to any sort of government interventions, regarding price or privacy. It is based on Blockchain Technology, with the chain of blocks representing a set of transactional data, which is stored in Cloud. The data stored inside the blocks cannot be erased or replaced. Basically speaking, cryptocurrency runs on decentralized networks.
Cryptocurrencies are highly volatile in nature, as the price mainly depends on the demand and supply in the market. You can avoid volatility by converting coins over crypto exchanges like gran-imator.co. The overall price volatility and mining of crypto coins are considered some of the main challenges in accepting crypto as a stable or regular form of currency. Some of the most popular cryptocurrencies are Bitcoin (BTC), Ethereum(ETH) (ETC), Litecoin (LTC), Dogecoin, Cardano, Solana, and more. In fact, these cryptocurrencies can also be paired and exchanged with regular fiat currencies or forex like USD, EUR, GBP, CAD, AUD, JPY, Swiss Franc, etc. for getting higher returns, totally depending on the present market size, currency supply and valuation.
As a matter of fact, cryptocurrencies are managed by a network of nodes that perform a variety of roles, like storing and validating crypto trading data in a real-time manner. And, with Blockchain technology and payment system, it provides a new dimension and impetus to crypto trading globally.
Advantages of Cryptocurrency
Over the years, cryptocurrency has gained huge popularity among existing forex investors, stock brokers, online merchants and traders due to the high returns it promises in a short time. And by using such digital currencies, it is easier to transfer money and make virtual payments, without the involvement of any bank or financial institution that might charge a commission fee. Let’s understand some of the advantages.
- Immunity from Inflation – The main cause of the decline in the value of fiat currencies is an inflationary market, which results in losses for forex traders and investors. But, cryptocurrencies are immune to inflation. For example, Bitcoin (BTC) has a cap on the amount of coins that are to be minted. The price of Bitcoin increases, as the growth in the supply of money surpasses the growth of Bitcoin supply. In fact, all other cryptocurrencies use the same method to cap the supply, thus providing immunity from inflation.
- Speed of Transaction – If you’re looking to transfer money in a real-time manner to your friends and family, cryptocurrency transactions make it possible in seconds. Here, you can transfer funds and assets from one account to another in a flash. On the contrary, wire transactions take 24 hours to process, whereas all other general transactions require 3-5 working days.Indeed, this is also one of the advantages of crypto payments
- Cost Effectiveness – Even though cryptocurrencies help transfer funds globally, the overall transaction cost is practically zero. The amount is ‘near negligible’, as there are NO third-parties like banks or credit card companies involved in crypto transactions.
- Runs on Decentralized Network – As cryptocurrencies run and work on decentralized networks, it means that it is free from government control and regulations. In fact, the US federal authorities of the Department of Finance cannot impose codes of conduct or worthiness of the coin and cap its overall market supply. It is also highly secure & safe, as NO one can get access to your funds, unless they’ve access to the private key of your crypto wallet. There’s an element of anonymity, as your name or address are not shown on any transactions.
- Accessibility – As an investor or a trader, you just need a smartphone or a computer with a dedicated internet connection and secure network to perform cryptocurrency transactions. Just tie up with a crypto exchange, that’s it. There’s NO background check, credit check or ID validity to open a cryptocurrency wallet.
Disadvantages of Cryptocurrency
There are certain downsides to cryptocurrency trading, even though it might look lucrative and profitable to all first-time investors in crypto assets. Let’s look into it.
- Since cryptocurrency is based on Blockchain technology and runs on decentralized networks with no government control or regulation, there’s a possibility of network attack. A group of hackers can reverse the transaction which is processed and completed, temporarily pause any transaction midway, overspend your coins and prevent validations for new transactions.
- The lack of government/federal regulations and key policies is one of the major hindrances in cryptocurrency transactions globally. One glaring example of the same is the NO cancellation or NO refund policy, in case any wrong transaction is performed by a user or investor.
It can be assumed that even though there are certain disadvantages regarding cryptocurrency or digital currency transactions, overall it is a safe, secure and profitable way of earning bigger margins in a comparatively shorter time. Most importantly, investors in cryptocurrencies must possess adequate knowledge about the associated risks, before investing in crypto assets and popular currencies like the Bitcoin, Ethereum or Litecoin. The benefits are bigger than the drawbacks, thus making it easier it conclude that it is worth trading in cryptocurrencies, provided you do it in a secure way.