Advantages and Drawbacks Of Cryptocurrency

Cryptocurrency is a sort of digital currency that is recorded on a blockchain and may be used to buy or sell products or services.

A blockchain is a type of database in which information is stored in blocks that are linked to the preceding block. Because these blockchains are decentralized, not a single individual or group has power over them. That is, all transactions are permanent and can be viewed by anybody.

Cryptocurrency is discovered through a process known as mining, in which vast amounts of computational power are utilized to essentially discover individual coins using an algorithm that becomes increasingly harder with each new coin discovered. Bitcoin today requires extremely massive and costly equipment only to mine a single coin.

In layman's terms, someone creates a math problem (that becomes increasingly more difficult as it progresses), and the one who finds and solves it first receives the prize.

What are the advantages of cryptocurrency?

1. Independence-Normal currency is kept in a bank or in cash. These are held in a virtual wallet with cryptocurrencies and do not require the authority of a bank or government.

2. Distinction-Transactions are anonymous and cannot be linked to specific individuals. There is no middleman to approve or record the transaction in the ledger.

3. No Bank Fee! While there are still the costs of 'maker' and 'taker', as well as the occasional deposit and withdrawal cost, cryptocurrency does not charge account maintenance, minimum balance fees, or overdraft fees, like a typical bank does.

4. Availability - Anyone with an internet connection may access and trade cryptocurrencies, and individuals without traditional banking institutions can send and receive bitcoin payments.

What are the drawbacks of cryptocurrency?

1. Scalability - While there are an endless number of cryptocurrency coins that may be mined, the number of VISA and Mastercard transactions that occur each day dwarfs this. Because blockchain executes each transaction one at a time, it can take hours to complete these transactions.

2. Cybersecurity - Cryptocurrency can be stored in your personal digital wallet connected to your hard disk or in an online trading database (similar to how you trade shares). As with everything internet-related, these can be hacked and transferred to a third party with no means of knowing where it went.

3. Inherent Value Isn't There - Currency is no longer guaranteed by gold, but we do know that the New Zealand dollar is backed indirectly by the New Zealand Government, which will do everything in their ability to manage its value for the benefit of the country. Cryptocurrencies, on the other hand, have no direct value in terms of tangible or intangible things.

4. Price fluctuation - When compared to traditional currencies, the price of cryptocurrencies is particularly volatile. Bitcoin, for example, began 2020 around $9,500 USD and concluded the year at well under $40,000 USD. Because of this volatility, cryptocurrencies have become more of an investment than a currency.

5. Lack of regulation - Because cryptocurrencies are still relatively new, local and international regulations have yet to catch up with them. While IRD is providing statements on how they intend to recognize cryptocurrency, we have yet to establish a comprehensive set of regulations.

My thoughts on Cryptocurrencies

While cryptocurrency is predicted to eventually replace traditional currencies, I do not see this occurring for a long time. There are definitely numerous advantages to replacing traditional banks with digital currencies, but this is not yet a feasible aim unless adequate legislation and technology are in place. China has created its own cryptocurrency, which is likewise centralized, meaning that the coins are issued by the bank rather than being mined. This currency may also be traced and is backed by the Yuan.

If you're prepared to take the risk, there's money to be earned as an investor, but as a digital currency, it'll be a long time before it replaces the dollar.