Cryptocurrency – Advantages and Disadvantages.

Some cite cryptocurrency as the future of money but is it really? In this article, we take an honest look at the advantages and disadvantages of digital currency.

Benefit: Cryptocurrency is decentralised and therefore resistant to market manipulation.

Crypto is decentralised

One of the main selling points of crypto is decentralisation. Governments, large corporations or individuals cannot easily manipulate the currency due to its decentralised nature.

Downside: Proof of Stake blockchains reward those with the largest stake in the currency.

Whereby Proof of Work (PoW) will verify transactions on the blockchain and reward according to their ability to solve puzzles using the processing power of miners. Proof of Stake (PoS) blockchains give out rewards based on the amount of stake an individual holds in the crypto. Therefore, it’s likely that over time, controlling interests in a Proof of Stake cryptocurrency may shift to a few large operators unless checks and balances are put in place. Also, since most cryptos do not restrict the size of holdings, a large ‘whale’ (a large crypto investor) could cause the price to crash by selling all their holdings in one go.

Benefit: Cryptocurrency is private.

Crypto is private

Yes, it’s true transactions on the blockchain are not stamped with your personal details so, in theory, your transactions are private.

Downside: All transactions are public.

Although transactions are not personally identifiable, once someone has your wallet address they can pretty much see all your transactions and wallet balance. All transactions are stored on the blockchain indefinitely and cannot be deleted.

Benefit: You can transfer monetary value anywhere in the world quickly at a minimal cost.

Yes, cryptocurrency can be used to transfer monetary value across the world without middlemen and with minimal fees.

Downside: Crypto is volatile, therefore care must be taken on transfer.

Crypto is volatile

You need to be careful that the transaction does not devalue or become more valuable over a short space of time. For instance, if you use crypto to buy goods and the value of the crypto increases massively in value shortly afterwards, it may have been best to hold on to it rather than use it for purchasing. Also, if you accept payment in crypto and the value tanks you will be left with less money in your pocket than you would have otherwise.

Benefit: Cryptocurrency is resistant to fraudulent transfers.

Unlike traditional bank accounts and cards, crypto is relatively resistant to fraudulent transfers. This is because digital wallets require a valid wallet address and a digital signature to verify the transaction. No one should be able to access your wallet without your seed phrases.

Downside: Crypto is computer-based which makes it an ideal target for hackers.

Crypto is an ideal target for hackers

If hackers gain access to your computer or phone and have access to your seed phrases they can transfer your crypto to their own wallet address. Hardware wallets are often preferred to store large crypto holdings.

Benefit: Crypto can increase in value unlike any other asset currently available.

Yes, it’s true many of the top cryptocurrencies have increased massively since inception and many millionaires have been made. Bitcoin for example gained over 6000% in 2013.

Downside: The volatile nature of crypto can cause the value to collapse overnight without warning.

Terra Luna Crypto crashed 99% in 2022

Investors in token Luna for example lost 99% of its value in their holdings when the crypto crashed suddenly. The currency crashed from $24 to $0.15 in May 2022.

Benefits: Crypto cannot be confiscated by unscrupulous governments.

Yes, due to its digital nature and decentralisation governments will find it difficult or impossible to confiscate digital currency.

Downside: Governments can issue stringent regulations to impede or ban crypto entirely.

Although governments may find it difficult to confiscate crypto, they can pass stringent regulations to impede or ban its progress. Stringent regulation on exchanges for example would mean there would be few places where you could sell your crypto.

Final thoughts

Cryptocurrency offers so much promise but with caveats. If you are considering investing in cryptocurrency it’s essential you do not risk all you have in one crypto. Secure your laptop and mobile and be aware the rules of the game may change overnight. With that said, there’s no doubt the future of crypto looks bright. Invest wisely.

This article is not investment advice. You should always carry out your own research.

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