Despite the fact that cryptocurrencies emerged in 2009, many people still don’t know in detail what they are. In this post we tell you what cryptocurrencies are and what their advantages and disadvantages are.
What are cryptocurrencies?
To begin with, you should know that cryptocurrencies – also known as bitcoins or altcoins – are an intangible and decentralized means of payment alternative to traditional money.
That is to say, through these virtual currencies we can carry out operations using a digital encryption, which provides security, without the need for intermediaries.
“Crypto coins, especially Bitcoin, are exciting because they show how cheap it can be to move value anywhere in the world. Bitcoin is better than traditional coins in the sense that you don’t have to be physically in the same place, and of course, for large transactions, traditional coins can be quite inconvenient.”
Bill Gates, co-founder of Microsoft
How do cryptocurrencies differ from traditional Money?
Crypto coins are not made of paper or credit cards. In this case, the money is in virtual wallets protected by a chain of blocks, or database, which is called a Blockchain. In these portfolios, also called wallets, all the operations made by any person who has a cryptocurrency are registered.
What are the cryptocurrencies for?
Cryptocurrency is still a coin, but a digital one. This means that they have the same use as any other physical currency. Thus, we can make payments between people. In fact, companies like Microsoft, Destinia, WordPress, among many others, already allow you to buy with bitcoins, or other cryptocurrencies, on their websites.
Advantages and Disadvantages of Cryptocurrencies
To learn more about this new way of managing money, it is interesting to know what its benefits are, as well as its risks.
In this sense, we have to point out that cryptocurrencies are characterized by their volatility. An element that lies between the advantage and disadvantage, since the user can double his profits from one day to another, as well as he can also lose them quickly.
Advantages of Cryptocurrencies
These virtual currencies are not regulated by any type of government organization, such as the State, banks, financial institutions or companies. This gives the possibility to use them anywhere in the world.
For example, Bitcoin states that “just as no one controls the technology behind email, Bitcoin also has no owners. Thus, this type of cryptocurrency is controlled by all its users. Therefore, even though programmers improve their software, they cannot make a change without the consent of all customers.
According to experts, it is impossible to counterfeit or duplicate cryptocurrencies thanks to a sophisticated combination of proven cryptographic techniques. In this sense, each person has cryptographic keys that are necessary to carry out any type of digital operation.
Some cryptocurrencies are deflationary
Crypto coins such as Bitcoin or Litecoin have limited the issuance of their virtual coins. In the case of Bitcoin, to 21 million and Litecoin to 84 million. This makes them deflationary crypto coins, since the issue of these digital currencies is reduced over time.
Other advantages are the irreversible transactions. That is, if cryptocurrencies are used, no third party can cancel or modify a transaction already made. This is because they are not regulated by a central body that can access them.
One of the advantages for e-commerce, for example, is its immediacy. If we have international customers, this payment method could greatly speed up the process of change, especially between banks in countries that do not have treaties with each other, and have to go through a central bank, causing payment processes to be delayed by several days.
All transactions made through Blockchain are public. The blockchain file is stored on multiple computers in a network, not in one place. Thus, this type of storage allows it to be readable by all users, making it transparent and difficult to alter.
Disadvantages of cryptocurrencies
At the same time, we find a series of disadvantages in crypto monies that may be the cause of their lack of settlement in society and their distrust of potential and future users.
Possible loss of money
One of its main dangers, and its most risky feature, is that if you lose the private key to access your wallet, you lose all the money you had in it, since it is virtual money. Therefore, it is advisable to have a backup of your wallet to avoid this fateful situation.
Changes and lack of regulation
Work is already under way on its regulation and there are several European Union directives pending approval.
In Spain, in view of the rapid expansion of cryptocurrency, particularly for the use of remittances and also as an investment asset, new regulations are expected in this area. In this regard, the State Agency for the Taxation Directorate of Spain states that “in relation to the fiscal risks observed in operations carried out with cryptocurrencies”, actions will continue based on the general guidelines contained in the Tax and Customs Control Plan.
Mistrust of potential users
Although the trend of cryptocurrencies has been increasing in recent years, many companies have not yet dared to use this virtual currency. One, due to the risk of price fluctuations, and two, due to the lack of knowledge about the benefits that cryptocurrency can bring.