The first cryptocurrency, which is now the most valuable cryptocurrency was birthed in 2009. Ever since, cryptocurrency has not only become the reason we see global finance differently today, it has also become a target for both criticism and adoration from all directions in the world today. A larger chunk of the criticisms has come from central banks/government institutions around the world.
Like fiat currencies, cryptocurrencies were made into existence with the purpose of being a medium of exchange in transactions. However, cryptocurrency, as long as benefits are a concern, is a notch further and better compared to the fiat currencies issued and controlled by central banks, because it has unique qualities fiat currencies lack. Also, just like any other medium of exchange, cryptocurrencies do have their disadvantages, but are the benefits worth it?
In today’s article, the pros and cons of cryptocurrency will be broken down into simple terms so that you are equipped with the knowledge of what this technology and medium of exchange is all about.
When cryptocurrencies are talked about, one of the basic and fundamental features of this medium of exchange is decentralization. A unique quality which simply means it is not issued, owned, controlled or monitored by any financial institution or central bank (government). Such quality makes it impossible for its price value to be influenced by government decisions or interventions.
Cryptocurrency based transactions are made possible through nodes (a global network of computers) on a virtual existence, unlike fiat currencies which are sourced physically from central banks. To simply put: cryptocurrency cannot be controlled by governments and its institutions, only actual owners can, and that is the beauty of decentralization of cryptocurrency.
Records are permanent
The bane of fiat currencies is that it is prone to manipulation, especially in countries where corruption is rife. For fiat currencies, records can be manipulated by institutions, but this is impossible for cryptocurrencies due to blockchain technology. In a simple definition, blockchain is a ledger system for cryptocurrencies, an online recording mechanism and a fundamental technology of the system. Every cryptocurrency transaction made has its record permanently stored on the blockchain! With the help of cryptography, these transactions are encrypted and impossible to manipulate by any entity, unlike fiat currencies. This only means one thing, and that is, reliability and accountability.
Unlike fiat currencies issued by central banks, transactions that were made with the use of cryptocurrency can be seen/viewed by anyone around the world at any time. All you need to do is getting the particular transaction address on the internet with the use of ‘blockchain explorers.’
High price volatility
The unstable nature of cryptocurrency has been one of the criticisms it has faced since inception of the technology. The price of cryptocurrencies can double in a very short amount of time, as well as losing its value by half its initial price. For such reason, it makes it difficult to predict its projections. With such volatility, it means one can lose a lot in a short period, while also gaining a lot of profit in a short period. For this reason, institutions around the world are wary about adopting cryptocurrency.
It is a scarce asset
Yes, they are scarce assets! Central banks can print as much as they can to manipulate currencies, but cryptocurrencies are mined by individuals and poured into circulation. For example, 88% of bitcoin has already been mined and with only 22 million BTC in existence, it only means bitcoin is in limited supply. Once it is completely mined, it will only continue to grow in value when you consider how demand and supply works, especially for a limited commodity.
With such characteristics, fiat currency will soon become an outdated medium of exchange in transactions. Cryptocurrency cannot be controlled by any entity, and governments around the world do not like what they cannot control, and this has been enough reason for some countries to ban this technology. However, this has not stopped what many consider as a movement against the shackles of financial centralization!