Advantages of Cryptocurrency :
1. Protection from inflation –
Inflation has caused many currencies to get their value declined with time. Almost every cryptocurrency, at the time of its launch, is released with a fixed amount.
2. Self-governed and managed –
Governance and maintenance of any currency is a major factor for its development. The cryptocurrency transactions are stored by developers/miners on their hardware, and they get the transaction fee as a reward for doing so. Since the miners are getting paid for it, they keep transaction records accurate and up-to-date, keeping the integrity of the cryptocurrency and the records decentralized.
3. Secure and private –
Privacy and security have always been a major concern for cryptocurrencies. The blockchain ledger is based on different mathematical puzzles, which are hard to decode. This makes a cryptocurrency more secure than ordinary electronic transactions. Cryptocurrencies, for better security and privacy, use pseudonyms that are unconnected to any user, account or stored data that could be linked to a profile.
4. Currency exchanges can be done easily –
Cryptocurrency can be bought using many currencies like the US dollar, European euro, British pound, Indian rupee or Japanese yen. With the help of different cryptocurrency wallets and exchanges, one currency can be converted into the other by trading in cryptocurrency, across different wallets, and with minimal transaction fees.
5. Decentralized –
A major pro of cryptocurrency is that they are mainly decentralized. A lot of cryptocurrencies are controlled by the developers using it and the people who have a significant amount of the coin, or by an organization to develop it before it is released into the market. The decentralization helps keep the currency monopoly free and in check so that no one organization can determine the flow and the value of the coin, which, in turn, will keep it stable and secure, unlike fiat currencies which are controlled by the government.
6. Cost-effective mode of transaction –
One of the major uses of cryptocurrencies is to send money across borders. With the help of cryptocurrency, the transaction fees paid by a user is reduced to a negligible or zero amount. It does so by eliminating the need for third parties, like VISA or PayPal, to verify a transaction. This removes the need to pay any extra transaction fees.
7. A fast way to transfer funds –
Cryptocurrencies have always kept itself as an optimal solution for transactions. Transactions, whether international or domestic in cryptocurrencies, are lightning-fast. This is because the verification requires very little time to process as there are very few barriers to cross.
8 . Lower Transaction fee- Transactions in virtual currency happens through blockchain in which the holder just have to access his computer, connect it to the internet and transfer the money without any cost. As there is no involvement of banks, transfer charges are not required to be paid, and the holder only has to bear the conversion cost, i.e., cost of converting virtual currency into real currency which is very minimal.
9. No counterfeiting- This is the most significant advantage of cryptocurrency, that it could not be fabricated or manipulated as it is secured by cryptographic technique.
Disadvantages of Cryptocurrency :
1. Can be used for illegal transactions –
Since the privacy and security of cryptocurrency transactions are high, it’s hard for the government to track down any user by their wallet address or keep tabs on their data. Bitcoin has been used as a mode of exchanging money in a lot of illegal deals in the past, such as buying drugs on the dark web. Cryptocurrencies are also used by some to convert their illicitly obtained money through a clean intermediary, to hide its source.
2. Data losses can cause financial losses –
The developers wanted to create virtually untraceable source code, strong hacking defenses, and impenetrable authentication protocols.
This would make it safer to put money in cryptocurrencies than physical cash or bank vaults. But if any user loses the private key to their wallet, there’s no getting it back. The wallet will remain locked away along with the number of coins inside it. This will result in the financial loss of the user.
3. Decentralized but still operated by some organization –
The cryptocurrencies are known for its feature of being decentralized. But, the flow and amount of some currencies in the market are still controlled by their creators and some organizations. These holders can manipulate the coin for large swings in its price. Even hugely traded coins are susceptible to these manipulations like Bitcoin, whose value doubled several times in 2017.
4. Some coins not available in other fiat currencies –
Some cryptocurrencies can only be traded in one or a few fiat currencies. This forces the user to convert these currencies into one of the major currencies, like Bitcoin or Ethereum first and then through other exchanges, to their desired currency. This applies to only a few cryptocurrencies. By doing this, the extra transaction fees are added in the process, costing unnecessary money.
5. Adverse Effects of mining on the environment –
Mining cryptocurrencies require a lot of computational power and electricity input, making it highly energy-intensive. The biggest culprit in this is Bitcoin. Mining Bitcoin requires advanced computers and a lot of energy. It cannot be done on ordinary computers. Major Bitcoin miners are in countries like China that use coal to produce electricity. This has increased China’s carbon footprint tremendously.
6. Susceptible to hacks –
Although cryptocurrencies are very secure, exchanges are not that secure. Most exchanges store the wallet data of users to operate their user ID properly. This data can be stolen by hackers, giving them access to a lot of accounts.
7. No refund or cancellation policy
If there is a dispute between concerning parties, or if someone mistakenly sends funds to a wrong wallet address, the coin cannot be retrieved by the sender. This can be used by many people to cheat others out of their money. Since there are no refunds, one can easily be created for a transaction whose product or services they never received.
8. Highly volatile- Cryptocurrencies are highly volatile. Taking the example of bitcoin, in the year 2017, its value soared from $1000 to around $20,000 before dropping down to around $ 13,000 at the end of the year. Since then, its value has risen and dropped unexpectedly from day to day. Same could be witnessed in other cryptocurrencies like Ether and Ripple.
9. No uniformity in law- There is no uniformity of law regarding cryptocurrencies; every country has its own law and method of dealing with these virtual currencies. Like for example, China has recently banned all B2B transactions of bitcoin whereas, Japan has recognized bitcoin as a legal tender. This creates a lot of confusion amongst holders, leading them to make unsound investments.
10. Lot of anonymity- One of the greatest disadvantages of cryptocurrency is anonymity. The transactions are recorded and made public, but they are linked with an electronic address. So, whatever transaction is made using bitcoins, it cannot be traced specifically to you.