The crypto industry is dubbed the new financial sector and is working to become a fully adopted world currency.
Cryptocurrency has helped reduce the heavy dependence on the government and financial intermediaries. With the introduction of blockchain, payments are now faster without intermediaries.
Despite the benefits cryptocurrency offers, it still has its downsides.
I will give you a very detailed explanation of what cryptocurrency is, the benefits you stand to gain from it, and its disadvantages.
What is Cryptocurrency?
A cryptocurrency is a kind of currency that does not exist in the physical form. Instead, it is only accessible in a digital setting.
With cryptocurrency, individuals can transmit value from one crypto wallet to another without any physical contact.
Cryptocurrency is decentralized, meaning it does not need the interference of a country's government or central bank.
The first cryptocurrency launched was Bitcoin in 2008, which has since remained the most influential crypto.
With Bitcoin's introduction, other cryptocurrencies have emerged, including Ethereum, Litecoin, BNB, and others.
The focal point of cryptocurrency is the blockchain, where all cryptocurrency-related activities start and end. Because of how blockchain technology works, it is very much accessible to anyone who wants to be part of it.
Also, with blockchain technology, there's no centralized authority, meaning that everyone can participate in all the activities within the blockchain, but no one controls it.
What is Blockchain Technology?
You can't talk about cryptocurrency without mentioning blockchain technology. It is the technology on which crypto is built.
In simple terms, the blockchain is a digital library or database where data is stored. The data found in the blockchain are arranged in blocks, and cryptographic proofs secure it.
Blockchain technology has been in existence before the creation of cryptocurrency. The technology was amplified with cryptocurrency.
Functioning as a distributed ledger technology, the design of the blockchain is naturally resistant to fraud and modifications.
The technology behind the blockchain can be deployed in other areas apart from the crypto industry.
Because of how secure the technology is and how it prevents data from being tampered with, it can be deployed to ensure data integrity is preserved.
Other areas where blockchain technology has the potential to be harnessed are insurance, IoT, healthcare, and supply chains.
Features of Cryptocurrency
Cryptocurrency has certain features that make it unique from the regular financial ecosystem.
With an increasing adoption rate in the commercial sector, here are some of the unique features of cryptocurrency.
Decentralization
The crypto industry uses blockchain technology, ensuring the digital financial ecosystem is free from a centralized authority.
This isn't an ecosystem where the government has a database or censors the number of transactions individuals make.
A significant factor ensures that the crypto industry is not centralized; its activities do not occur in a single place.
A bank or traditional financial institutions have a physical location where their activities occur. Disruption or destruction of that physical meeting place can lead to transaction roadblocks.
This is not the case with cryptocurrency. Even if there are hacking attempts on the blockchain, do not stop other users from accessing and using the blockchain.
Anonymity
Cryptocurrency is the perfect way to make transactions with anyone around the world without having to reveal your identity.
When you are making transactions on the blockchain, your name and address are not displayed on the transaction. Instead, only your public keys (your wallet address) are shown in the transaction.
A case study of the anonymity of cryptocurrencies was the donations that occurred during the start of the Russia-Ukraine war. People had to donate via cryptocurrencies without having to reveal their identities.
Security
Cryptocurrencies are more secure than the traditional financial system because of their technology.
Cryptocurrencies are stored in a digital wallet that is locked and secured using private keys. Only the owner has access to the wallet with private keys, except if another person knows the keys.
I recommend you store large chunks of cryptocurrencies using a cold wallet since hackers would have almost zero chance of hacking it.
Irreversible Transactions
The blockchain is unlike the bank you know, where you can complain of an error in your transaction, which will be reversed.
Because of blockchain technology, there is a need to double-check before sending out a transaction. The reason is that there's no room for your transaction to be reversed back to your wallet once it is successful.
Transparency
Transparency is a significant feature of the crypto industry; everything is open for the public to see, including the number of transactions.
In the traditional financial system, you don't have access to the number of transactions in the bank. You aren't sure whether the number of users they claim to have is accurate.
In the crypto space, that's a fad. You can now view and access data containing the number of transactions on the Bitcoin or Ethereum network.
It is available to the public, and you can't even manipulate those transactions or adjust the numbers.
Portable
Cryptocurrencies are the best form of currency in terms of portability.
With conventional banking institutions, you don't enjoy the full benefits of portability.
American Express is one of the significant banks used by the public in America. If you travel to other parts of the world, such as Africa, where the bank won't have a branch, there would be difficulties in making transactions.
You can transact in any part of the world with cryptocurrencies, including the Sahara desert or Antarctica.
Pros and cons of Cryptocurrency
Understanding crypto pros and cons are essential for a new or experienced investor.
Below, you will get a substantial knowledge of what you benefit from using cryptocurrencies and the downsides.
Pros of Cryptocurrency
The Crypto Market is Always Open
There's no closing period in the crypto market, unlike the traditional banking system where opening and closing hours exist.
Even during FOMO cycles in the crypto, blockchain technology can still run 24/7 and process all transactions.
FOMO in cryptocurrency means Fear Of Missing Out. It is a feeling of emotion where investors think they would lose out on profits if they don't invest in a particular crypto.
It would help if you learned how to deal with FOMO in crypto to avoid making hasty trading decisions.
Easily Transfer Funds
With how accessible crypto is, it has no limitation on the place or time you can transfer funds.
You can be anywhere in the world and quickly transfer funds without going through rigorous processes. For instance, making an international transaction with a bank needs many steps for it to go through.
With cryptocurrency, there's no recognition for international or local transactions since a minute is enough to make transactions.
Cost Effective
I just talked about how easy it is for users to make transactions with cryptocurrencies, even for international transactions.
However, it even gets better when you talk about the charges required to make an international transaction in a bank.
Especially in third-world countries, it can be tough to make an international transaction, and the money charged for such transactions is simply overwhelming.
With cryptocurrency, you don't need to pay huge charges to make transactions with cryptocurrency. The charge you pay while sending cryptocurrencies is far lesser than that of the bank.
You can Manage it Yourself
The crypto ecosystem is unlike traditional banks, where you need a financial officer to manage your account.
Even if you have $1 billion of Bitcoin stored in your wallet, the control and access to that wallet solely depend on you.
The bank needs to call and question you when sending $1 million out of your bank account. With crypto, you are all by yourself, as you are the one dictating how things will be done without any query.
This is one of the pillars of cryptocurrency, giving power back to users and not a central authority.
You are Safe
With blockchain technology, you get the amount of security unavailable in the bank.
In crypto, there's a practice of "not your keys, not your money." This means you don't have access to a crypto wallet's private keys if you won't have access to the wallet.
Cons of Cryptocurrency
They can be security risks
For those just getting started in crypto, you may encounter security vulnerabilities if you are not careful.
Blockchain technology is more secure than regular banks, but you must take security precautions.
Even during FOMO in cryptocurrency, you should not allow any person to have access to your private keys. Access to your private keys means access to your wallet.
Researching cryptocurrency can help you know how to deal with FOMO in crypto. It will help you make rational decisions that won't put your investments at risk.
Illegal Transactions
The cryptocurrency industry has become an avenue for money laundering and illegal access to wallets. This is a major point when discussing the pros and cons of cryptocurrency.
Scammers, corrupt government officials, and executives use cryptocurrencies to store the illegal money they stole.
Since their identity is not revealed, the illegal money can quickly be on the blockchain without detection.
Wrapping Up
Above, the meaning of blockchain and cryptocurrency was discussed. I also talked about the pros of cryptocurrency and how it benefits you.
The cons of cryptocurrency were also covered, with insights on how to deal with FOMO in crypto.
While the crypto industry has many benefits and advantages, you still need to take security measures to prevent illegal access to your funds.