The 12 Main Pros and Cons of Crypto ExplainedReading Time: 6 minutes
Getting into crypto isn’t clear-cut, so we’ve summarized the reasons why you and why you shouldn’t.
Cryptocurrency is an undeniably controversial kind of asset. While some love the crypto space and have invested thousands in the industry, others steer clear of crypto altogether, believing it to be nothing but bad news. So, what are the pros and cons of cryptocurrency? Should you avoid it?
The 6 Pros of Cryptocurrency
Cryptocurrency exists on a blockchain, which is a secure technology by nature. Blockchains conceal data from prying eyes and don’t display the names and contact details of those making transactions. In a typical bank transaction, the sender’s and recipient’s names are visible to the bank, which immediately highlights the identities of both parties.
On a blockchain, only the wallet addresses of those involved in the transaction are displayed. However, cryptocurrency typically isn’t anonymous. Rather, it’s pseudonymous. This is because your cryptocurrency wallet address and transactions can be traced back to your identity. But privacy coins like Monero, ZCash, and Dash are designed to overcome this issue and totally anonymize transactions.
Decentralization stands at the heart of cryptocurrency. While cryptocurrencies can be traded on centralized platforms, crypto assets exist on decentralized blockchains. A decentralized blockchain distributes its information across multiple devices or nodes, ensuring that no person or group can control the network at any given time.
Decentralization can drastically lower the chances of malicious takeovers, technical crashes, and network corruption. It offers a fairer financial system wherein the users themselves can contribute to the network and even vote on how it progresses (via a mechanism known as governance).
3. Networks Are Secured
Cryptocurrency blockchains use consensus mechanisms to create new blocks and secure the network. The most commonly used consensus mechanisms are proof of work and proof of stake. The proof of work mechanism uses miners to confirm blocks and circulate new coins. Miners verify the legitimacy of blocks, securing the network.
On the other hand, the proof of stake mechanism uses validators to verify transactions and create new blocks. This maintains the security and transparency of blockchains.
4. Plenty of Currencies to Choose From
While fiat currencies are limited in their use from country to country, you can use thousands of cryptocurrencies worldwide. If, for example, you’re in the United Kingdom, you can only use GBP as a traditional tender. If, however, you’re using a crypto exchange in the UK, you can buy and sell thousands of different assets. Furthermore, your Bitcoin is the same to spend in every country, no matter where you are.
However, cryptocurrencies aren’t available in every country, which we’ll discuss later.
5. DeFi Continues to Grow
Decentralized finance (DeFi) is a type of finance that use decentralized services and assets. While typical financial institutions use a centralized model, with a small group of decision-makers at the top of the pyramid harboring all the control, DeFi works primarily on the basis of no one authority. Instead, platforms are controlled and maintained by the users.
The DeFi industry has grown and diversified, and you can now carry out many typical financial functions on the platforms within it. For example, you can lend assets, take out loans, and even open a savings account using DeFi services using a wide range of cryptocurrencies.
6. Cheaper International Transactions
A huge problem that many overseas workers experience is the process of sending funds back to family members, as they can incur high fees. On top of this, sending money to friends, colleagues, or businesses abroad can be a pricey ordeal, with exchange rates sometimes worsening the issue.
What’s great about cryptocurrency is that it can be sent from country to country without incurring additional fees. While you may incur blockchain or exchange fees when trading or sending, these will not increase based on location. However, some exchange platforms charge extra for international transactions, so look out for this before sending any funds.
The 6 Cons of Cryptocurrency
1. Constant Price Fluctuations and Crashes
One of the biggest downsides of the cryptocurrency market is that prices rarely stay the same for long. A typical cryptocurrency’s price will fluctuate multiple times every minute. And while these fluctuations are often minor, this isn’t always the case.
Unfortunately, crashes are common in the crypto industry, with so many well-known assets suffering huge downfalls in price over a short period. Bitcoin, Ethereum, Litecoin, Dogecoin, and hundreds of other cryptocurrencies have experienced crashes in the past, sometimes in isolation and sometimes with the rest of the market. Investors are always at risk because of this.
Criminals certainly haven’t missed out on the rising popularity of cryptocurrency in recent years. Unfortunately, many people who invest in cryptocurrency aren’t fully aware of how easy it is to fall victim to crypto scams, making it much easier for criminals to take advantage.
Various tactics are used to steal cryptocurrency, including phishing, malware, keyloggers, and more. For example, many people have had their crypto exchange credentials stolen in phishing scams, giving cybercriminals direct access to their accounts and the funds held within them.
Many crypto crimes go unsolved and unpunished because authorities often have difficulty tracking and identifying the guilty culprit. While this is improving, thousands of people are still at risk every day of losing their crypto holdings to a scam or attack, and there are many crypto scams to look out for.
3. Little to No Regulation
Unlike traditional money, there is little regulation in the crypto space. Because the mainstream use and trade of cryptoassets are still fairly new, lawmakers have yet to create a solid set of rules around this market. While certain governments are making moves to regulate cryptocurrency, be it by listing cryptocurrencies as securities or restricting their use, numerous open ends still affect users in many different ways.
However, some see crypto’s lack of regulation as a good thing. Crypto enthusiasts are often supporters of unregulated currency, as it cuts out the possibility of the government and traditional financial institutions manipulating the market or the assets themselves. But weak regulation can also spell trouble in terms of fraud, theft, and insider trading.
Furthermore, those with enough crypto, known as crypto whales, can still manipulate the market, so there is no real escape from market manipulation, despite what some crypto advocates would tell you.
4. Crypto Is Illegal in Some Countries
While cryptocurrency is legal in most nations, certain governments have restricted or banned its use. Examples of such countries include China, North Korea, Egypt, and Turkey. So, if you want to trade crypto but reside in a nation where it is restricted or outlawed, you’ll be in a tough spot.
5. Scaling Limitations
In crypto, scaling refers to the expansion of a project, platform, or blockchain. As the demand for something increases, the stress on the network increases with it. Think of it like a once quiet road now filled with a line of cars, each moving at a snail’s pace. When a blockchain or platform gets overwhelmed, everything slows down.
Take the Bitcoin blockchain, for example. Though the Bitcoin blockchain was initially very quiet, Bitcoin’s massive popularity caused floods of new users to join the network, conducting thousands of transactions every hour. To confirm a transaction, miners must verify its legitimacy and add it to the next block. When thousands of transactions are waiting to be confirmed, the miners have a much higher workload, meaning each user has to wait longer to have their transaction processed, and transaction fees also increase.
Each Bitcoin block can only hold 1MB of transactions, meaning scaling upward to cater to a higher transaction number per block is difficult. This is also the case on other blockchains, though Bitcoin’s popularity makes it one of the most notable cases.
6. Energy Consumption
A key concern associated with cryptocurrency is its effect on the environment. Not only do popular blockchains require huge amounts of electricity to function, but mining cryptocurrency can also rack up mammoth energy bills.
When the energy requirements of crypto and traditional money are compared, the full extent of the former’s requirements come to light. For example, just one Bitcoin transaction uses 2188.59 kWh of electricity, whereas it only requires 148.63 kWh to conduct 100,000 Visa transactions (as found by Statista).
The huge drain of electricity poses a risk to our planet, as most power used for cryptocurrency is sourced from non-renewable resources. However, power use for crypto mining depends on where the mining occurs. In countries like Norway and Iceland, renewable energy is used for crypto mining.
Cryptocurrency Is a Mixed Bag
While cryptocurrency has plenty of perks, it presents just as many issues. It’s important to be aware of cryptocurrency’s pros and cons before investing in crypto.
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