Table of Contents
What Is Cryptocurrency and How Does It Work?
A cryptocurrency (or “crypto”) is a form of payment that can circulate without the need for a central monetary authority such as a government or bank. Instead, cryptocurrencies are created using cryptographic techniques that enable people to buy, sell or trade them securely.
Cryptocurrencies can be exchanged for goods and services, though they are often used as investment vehicles. Cryptocurrency is also a key part of the operation of some decentralized financial networks, where digital tokens are an important tool for carrying out transactions.
Some coins are used to transfer value (measured in a currency like dollars) cheaper and faster than using a credit or conventional means. Meaning the cost to send someone crypto, which can be converted into regular currency, is cheaper than other payment methods like a check or wire transfer.
Other coins are the only form of payment or value that is accepted on exchanges or in software like video games or at a UK casino.
What Are the Benefits of Crypto?
First of all, you can make transactions more easily. The costs are lower and you also have more privacy than in the case of other forms of transactions. All you need to make a crypto transaction is a smartphone app or an e-wallet, without having to make any bank account.
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Payments settle in no time in the case of most cryptos, taking only a few minutes or even less, while wire transfers at banks can take three to five business days to settle and they are also more costly.
The absence of a financial authority like the bank also translates into having the freedom to make transactions without having to get any permission. Thus said, there are no limitations when it comes to purchases and withdrawals.
You can also benefit from non-stop business hours. Stock markets are open only on weekdays, having a regular schedule from 9:30 am to 4:30 pm, and they are not open during weekends and holidays. On the other hand, crypto markets are available 24/7.
What Are the Drawbacks of Crypto?
One major disadvantage is that cryptocurrency is extremely volatile. Its price can go to incredible amounts, but it can also crash very easily, with considerable price fluctuations even on the same day. Thus said, this is not the best option if you want stable returns.
As easily as its price can drop, its value can become nonexistent as well. If companies and consumers switch to another cryptocurrency, the value of your crypto becomes worthless.
Another disadvantage of crypto is that it exists only in a cloud which makes it more fragile. You can lose your virtual wallet or delete your currency and there’s not much you can do to bring it back. You can also lose your investment if you are the victim of a cyberattack, so you must continuously upkeep the security infrastructure.
Summing up, you have to keep in mind that understanding cryptocurrency takes a lot of time and effort and that it still hasn’t proven itself as a long-term investment. No one knows how crypto will develop in the future, so be cautious when choosing whether to turn to crypto or not and analyze all the pros and cons carefully.