Minerland_logo
#
Advantages and Disadvantages of Cryptocurrency

Advantages and disadvantages of cryptocurrency

  • 29 December 2021
  • 268 View

Everything in the world has advantages and disadvantages. Similarly, cryptocurrencies have advantages and disadvantages. If you are afraid of the disadvantages of cryptocurrency, then I am sure that if you are aware of the advantages of cryptocurrency, forget about its disadvantages and invest in it immediately in the shortest time. Before investing in cryptocurrencies, you should make sure about the advantages and disadvantages of cryptocurrency.

In this blog, I have mentioned some major advantages and disadvantages of cryptocurrency. So this will help you a lot in investing and trading in cryptocurrency. One thing I need to clear before is if you are looking for secure and safe payment transactions, then I make sure there is no alternative to cryptocurrency. There will be no security and privacy issues with the cryptocurrency currency. yuan pay group Blockchain technology never compromises on the user’s information and this currency can never be hacked.

What is a cryptocurrency?

We all must’ve heard the term Blockchain, Bitcoin, Crypto, etc. somewhere and how such technologies are responsible for creating a significant impact in the digital world. These technologies very well integrate and hence work in synergy.

We can see that Cryptocurrency like Bitcoin, Ethereum, etc. are the product of a Protocol/ Program which uses a specific technology/platform. So when we refer to “Investing in Cryptocurrency” it means, investing in the protocol. The product which is Cryptocurrency can be converted into a real-world currency for further use.

Why do Cryptocurrencies like Bitcoin, Ethereum, and Neo are so valuable?
The answer to that is, for something to be an effective currency, it has to have value. The US dollar is used to represent actual gold. The gold was scarce and required more efforts to be mined and refined, so the scarcity and work gave the gold value. This, in turn, gave the US dollar value. Now let’s talk about some advantages and disadvantages of Cryptocurrency.

Advantages and disadvantages of Cryptocurrency Investment

Before investing and trading in cryptocurrency there are some major advantages and disadvantages you need to disadvantage sider. This section will clear your many doubts, so let’s take a deep look at both.

Advantages and disadvantages of Cryptocurrency: Cryptocurrency Advantages

Let’s talk about the positive side of cryptocurrency. I have listed some advantages below, let’s understand these.

  1. No Fraud and Scam in Cryptocurrency

There are no fraud or scams in investing in cryptocurrencies. Unlike other payment methods such as online banking, credit card or gift card payments can never be reduced with digital currency. Payment always reaches the recipient in just a few seconds. No manipulation of digital currency is possible because it is secure and digital.

Advantages and disadvantages of Cryptocurrency: Cryptocurrency Advantages

  1. No Chance of Personal Information Leakage

If you buy something from a commercial store for payment, you prefer to give your credit card to the merchant. To pay, you must provide your PIN to the merchant. What do you think is the safest way? Of course, no pin code is a very secret thing and you do not have to share it with anyone. This is not a problem with digital currencies. You do not need to share your private key with anyone. Even the payment you make is 100% encrypted, no one can verify your payment information and it can never be leaked. So it is the best way for anonymous payments.

  1. Immediate and Secure Ownership Transfer

If you have digital currency in your digital wallet, trust me you have great assets. You can easily transfer it to any person without any confirmation. To transfer, you need the other person’s private key. There is no charge for the transfer of ownership, no horrific situation will occur and no paperwork is required. But if you compare it to other situations like transferring property or closing a bank account, you have to do big paperwork work and you have to pay the commission.

  1. Potential for high returns 

For the five years to December 31, 2020, the S&P 500 index of major US stocks combined with an annual growth rate of 14.5% (in dollars, net reinvested earnings). During the same period, the price of Bitcoin in dollars was combined with an annual growth rate of 131.5%.

Advantages and disadvantages of Cryptocurrency: Cryptocurrency Advantages

  1. Potential diversification 

Some digital currencies have been cited as an alternative to hedging gold risk in a portfolio context. For example, the S&P 500 fell in 17 months from the 60 months to December 2020, with the price of bitcoin rising in seven months. In the five years to the end of 2020, a portfolio of 10 % investing in Bitcoin and 90 % in the S&P 500 will generate a combined annual return of 26.8 %.

  1. Limited supply

There are up to 21 million coins that can be “mined”. About 18.5 million bitcoins have been mined so far, leaving less than three million bitcoins. One related feature is that the speed of bitcoin production decreases over time through a process called Bitcoin halving. In 2009, each block mined was worth 50 bitcoins, which is now worth 6.25 bitcoins per block.

  1. Protection from debased currencies and the threat of rising inflation

The Global Financial Crisis (GFC) of 2008/09 was a catalyst for central banks around the world to engage in unorthodox monetary policies, notably large-scale asset purchases. Since the GFC the Fed’s balance sheet has expanded by 8x, the ECB’s by a little under 4x, and the BoJ’s by nearly 7x. Some people are concerned this will result in a massive debasing of national currencies and the associated increase in inflation. They suggest cryptocurrencies offer alternatives that cannot debase in the same way.

  1. Growing acceptance and usage

A 2020 article on Coindesk.com claimed that Coinbase saw $ 135 billion worth of digital currency trading transactions in 2019, up 600 percent from 2018. The same article cites Chainalysis, which claims that payment processors had nearly $ 4 billion in bitcoin activity in 2019. Separately, it is notable that there has been a significant increase in the number of bitcoin electronic wallets created over the past few years (see graph below) and there are an increasing number of institutional investors who are looking to invest in cryptocurrencies, the latest being Blackrock and Bridgewater.

Advantages and disadvantages of Cryptocurrency: Cryptocurrency Advantages

Advantages and disadvantages of Cryptocurrency: Cryptocurrency Disadvantages

I know you have made your plan to invest in cryptocurrency after reading the advantages, but it would be good to be familiar with the disadvantages.

  1. Illegal Activities can be Perform

Usually illegal payments and activities can be done on the internet with the help of cryptocurrency. But no government can ban it because no one has authority over it. Governments and high authorities of the country can apply restrictions but can’t ban them.

  1. Loss Risk is high

No ownership or option on digital currencies carries its own risk. You cannot claim anyone in case of any problems. You cannot protect your digital currency from being lost due to any technical error in the wallet. No company controls this currency, so you cannot claim. If you have any problems, unfortunately, you cannot report them to anyone. So make sure that whenever you choose a wallet, make sure it has good reviews and you should trust it. Another point before using digital currency, make sure you are familiar with the current country policies on digital currency.

  1. Cryptocurrency Market is Highly Volatile

The market value of digital currencies fluctuates widely. It is very difficult to estimate the digital currency change chart. You cannot predict when values will rise or fall. To do this, you must be a good analyst and researcher. Also, you must be up to date with market news and trends in digital currencies. By investing in digital currencies, you need to prepare for any situation.

  1. High volatility and potential for large losses 

Annual fluctuations in the percentage change in the monthly price of Bitcoin to the US dollar is about 90%, which has been measured over the past five years. This is 15.3% and 13.4%, respectively, compared to the annual fluctuations of the percentage changes of the monthly S&P 500 and the price of gold. To give an idea of what these fluctuations mean for an investor, consider the return range. The maximum monthly return on Bitcoin for the 60 months to the end of December 2020 was 76.1% and the minimum was -37.6%. The timing of investing in bitcoin or other digital currencies will have a significant impact on returns.

  1. Correlations

As mentioned earlier, bitcoin prices have risen by seven months in the 17 months since the S&P 500 fell in the five years leading up to 2021. In other words, since the 17-month decline of the S&P 500 index, bitcoin has also fallen in 10 cases, which is a little more pleasant. Of the five worst months for the S&P 500, the price of bitcoin has fallen in four cases – it could be argued that bitcoin has a poor track record of delivering diversification benefits when it is most needed. The correlation between bitcoin returns and S & P500 returns is positive and stronger than the correlation between gold returns and S & P500.

  1. Endless potential supply 

While it is true that the number of bitcoins produced will eventually be limited to 21 million, and many other digital currencies will have limited supply in their protocols, there is currently nothing that can stop the growing number of currencies. Be digital. Therefore, the supply of digital currency is potentially unlimited. It is also worth noting that several central banks are exploring the possibility of launching their digital currencies, which may obscure the shine of privately published issues.

  1. Poor store of value and limited acceptance

While Bitcoin and some other digital currencies are now accepted in a growing number of payment platforms, the number of places where digital currencies can be exchanged for real goods or services is very limited. For similar reasons, the inherent fluctuations of digital currencies make them a weak store of value, because when it becomes a person’s base currency again, the value of crypto fluctuates even sharply daily.

  1. Unregulated and unbacked 

Cryptocurrencies are a private-sector structure with no formal oversight or regulation. This means that cryptocurrencies are highly vulnerable to criminal misuse as a means of defrauding reckless investors. An academic study in 2019 found that 25% of bitcoin users involve in illegal activities. Also, 46% of bitcoin transactions are related to illegal activities.

Conclusion

As you read, the advantages and disadvantages of cryptocurrency are the same size. So you have to be careful while you are investing or trading with cryptocurrency. Before investing in cryptocurrency you should have all advantages and disadvantages of cryptocurrency in your mind. Especially mentioned above, you can’t ignore these advantages and disadvantages of cryptocurrency because these are major and critical.

Distinct from the discussion on cryptocurrencies, there are several potential advantages in utilizing blockchain technology more broadly within the financial system. Perhaps paradoxically given the current lack of regulation of cryptos, blockchain could be a powerful regulatory tool. You can also use Blockchain as a means of cost reduction to make the financial system more efficient.

Leave a Reply

Your email address will not be published.