2017 saw Bitcoin prices soar to levels that were unimaginable. For the first time since its launch in 2009, the price of Bitcoin hovered around $15000 to $20000. Even though the price has stabilized at an average of $6500 (as of this writing), cryptocurrencies provide an interesting debate as to the real advantages and disadvantages.
In “Advantages & Disadvantages of Cryptocurrencies Explained,” we dive deeper to explore the real positives and negatives of cryptocurrencies. Let’s get started.
Merits of cryptocurrencies
So far, the most convincing argument in favor of cryptocurrencies is its underlying technology: Blockchain. Blockchain is an open and distributed database that can record transactions between 2 parties efficiently in an immutable and verifiable manner. In some Blockchains such as Ethereum, the ledger itself can be programmed to activate transactions automatically.
Obviously, Blockchain allows users to track their coins through every account in the ecosystem in a transparent, verifiable and auditable manner. This way, it’s difficult for any malicious user to forge or even steal coins from the system. It is this feature that provides a persuasive case of proof that cryptocurrencies are foolproof compared to fiat currencies.
Malicious users (hackers) may also find it difficult to attack a central server as it’s the case with fiat money that is managed and controlled by centralized authorities. Whereas governments and central banks have useful information about fiat money which can be stolen, Blockchain has no equivalent.
Every block — which stores a group of transactions — on the chain, is confirmed against the previous blocks to ensure it is valid by miners. For any block to be validated, miners have to compute complex cryptographic functions. And with no central regulator, the cryptocurrency community has complete control over the crypto’s supply, making it a far more democratic financial ecosystem.
Cryptocurrencies offer various practical merits over more fiat money as well. For instance, citizens of developing countries may find it challenging to locate a currency with any value in the global financial marketplace. This would mean that such a populace will effectively be locked out of the global financial system. Cryptos — with universal access — such as Bitcoin would open the global market for such people allowing them to participate in the worldwide economy.
Demerits of cryptocurrencies
The majority of cryptocurrency skeptics struggle with the idea that virtual currency isn’t worth anything at all. For instance, precious metals such as gold and silver have enjoyed high value since they were first accepted as means of exchange. Fiat money like the U.S. Dollar derives value from governments that grant them the legal status.
On the other hand, cryptocurrencies serve no practical purposes in the contemporary marketplace and have nothing underwriting their value. As such, it is theoretically impossible to assign a value to them apart from the fact a few users have accepted to use them as currency or token and the usual economics of demand and supply.
Outrageous price fluctuations have exacerbated fears among the crypto-skeptics over the years. How would you explain the fact Bitcoin lost a massive 25% of its total value in a two-week period in December 2017? These price fluctuations have made cryptocurrencies quite challenging for enterprises to accept them as means of payment.
Some cryptocurrencies, including Bitcoin, are exceptionally too slow to process for everyday commercial purposes. For instance, Bitcoin miners can process 3 to 7 transactions per second. When you compare this rate to Visa (which processes over 24000 transactions per second), you’ll realize why contemporary businesses are skeptical of cryptocurrencies.
Besides, the resources needed to verify transactions in most cryptocurrencies are cost-prohibitive. In some cases, they can require transaction fees of up to $ 25 during peak times. This renders these cryptos inapt for cheaper transactions even if they tout an ability to become less expensive in the long term.
Scams are also common in the crypto universe. The so-called crypto “experts” can take advantage of the lack of regulation to purchase a lot of cheap tokens and then hype them in the mainstream media. Such recommendations can cause a demand spike that enables the expert to profit handsomely from such investments while others lose their money in the process.
Conclusion
While impartial observers are to conclude that cryptocurrencies have so many promises, there are a lot of hurdles to overcome to realize the potentials. It is up to you to think and make sound decision as to whether to you want to invest in cryptocurrencies or not.
By: CoVEX
