Cryptocurrencies are changing the world as we know it, and will continue to do so in the coming years. Still, their adoption rate has been slow due to various factors.
In this article, you’ll learn about the advantages and disadvantages of cryptocurrency in 2022, and you’ll see how those factors might affect its adoption rate in future years. Let’s begin by defining cryptocurrency, which can be tough to explain to non-techies.
Basically, cryptocurrency is digital currency that’s designed to be used like real money.
How cryptocurrency works
Cryptocurrency is a digital currency that uses cryptography to secure transactions. Cryptocurrencies are not tied to a bank or government and can be used like any other form of money. You can use them to buy goods or services, but you cannot use them at every store just yet.
There are many different types of cryptocurrencies, such as Bitcoin, Ethereum, Litecoin, Monero, ZCash and Dash. The first cryptocurrency was Bitcoin which was invented by Satoshi Nakamoto in 2009. In April 2011, Namecoin was created as an attempt to increase decentralization.
In October 2011, Litecoin was released and became the first successful cryptocurrency to use scrypt as its hash function instead of SHA-256. In February 2014, Mt Gox became the largest bitcoin exchange when it announced that it had been hacked and lost around 850,000 bitcoins. The value of bitcoins dropped from $US260 per bitcoin to $US120 per bitcoin in just one day's time.
Advantages of using cryptocurrency are as follows:
Accessibility
It doesn’t matter where you are in the world, cryptocurrency can be accessed by anyone who is connected to the Internet. Cryptocurrencies are available in a variety of different forms.
Some can be stored on your computer and transferred at any time, while others need to be purchased through a third party service. The two most popular cryptocurrencies are Bitcoin and Ethereum.
Privacy
Privacy is one of the most significant advantages of cryptocurrency, and this is largely due to the decentralized nature of the blockchain. This means that transactions cannot be traced back to an individual. In contrast, traditional banking institutions are not only able to trace transactions but also take responsibility for its security.
Additionally, all personal information must be provided when opening up a bank account which can lead to identity theft or fraud.
With a bank account connected with your social security number or other personal information, the government could also confiscate funds in your account without notice if they deem it necessary (i.e., seizing assets from American citizens during the recession).
Transactions on the Bitcoin network are pseudonymous, meaning there’s no need to disclose any identifying data such as name or address. Furthermore, Bitcoin wallets have little risk of being compromised because they don’t hold sensitive data like a credit card number or PIN.
Cost
The cost of using cryptocurrency is going to be much lower than any other type of financial transaction. For instance, if you're trading $1,000 worth of stocks, the fees for that would be about $30.
However, if you were to trade $1 million worth of stocks on a cryptocurrency platform then the fees would only be about one percent (1%). That's quite a significant difference! And while most traders are used to paying around $3 per trade with traditional brokers like TD Ameritrade and Fidelity, they can get up to 200 trades at once without any additional charges when trading cryptocurrencies. It just goes to show how advantageous it is in so many ways!
Minimizing Risk
One advantage to cryptocurrency is that it minimizes risk. When you pay with traditional currency, there's always the chance that something could go wrong and your money could be lost. With cryptocurrency, you are protected against these types of events because it is a digital currency which isn't tied to any country or government.
Cryptocurrency has no single point of failure, making it nearly impossible for anyone to take control of the system. The way this works is by having copies of each transaction in thousands of computers all over the world; if one goes down, there will still be hundreds more to verify transactions.
Plus, since transactions on a blockchain happen between two people without going through an intermediary like a bank (which adds their own fees), users can save money on fees and avoid some regulations too!
Future Prospects
Cryptocurrencies have the potential to change the world, and in many ways they already have. As more people become involved with cryptocurrency, it becomes increasingly difficult to ignore its importance.
The future is bright for cryptocurrency—and being an early adopter has never been more important. There are so many reasons why now is a great time to buy into this emerging technology, and below are just a few of them.
Below are some major disadvantages of using cryptocurrency
Government regulation
One major disadvantage to cryptocurrency is that it is not regulated by government. This means that the government does not control how much cryptocurrency a person or business can create and it also doesn't help to stop people from using cryptocurrency for illegal purposes. One example would be when some criminals use Bitcoin to buy drugs online without being traced back.
Furthermore, the unregulated market could potentially lead to crashes due to bubbles with no regulations set up to protect people against them.
However, this may change in the future as more government regulation is put into place for cryptocurrencies.
Individual tax evasion
Crypto's anonymity makes it the perfect currency for people looking to dodge taxes. In countries like Japan and Switzerland, individuals must declare any crypto earnings in order to be taxed. But as cryptocurrencies become more mainstream, they're less likely to attract tax evaders. *
Corporate fraud and illegal activity
It is difficult for law enforcement to trace cryptocurrency transactions and identify the parties involved. This makes cryptocurrency a tempting tool for criminals, tax evaders, and others who want to engage in illegal activity.
It also means that you could find your crypto account frozen without warning because someone else used it without your consent. For example, this happened when hackers stole $500 million worth of NEM from Japanese cryptocurrency exchange Coincheck Inc.
Cyber attacks on exchanges
Since cryptocurrency is decentralized and doesn't have a centralized authority, it can be very difficult to stop cyberattacks. A cyberattack on exchanges could result in complete losses for investors.
We've seen this happen before with Mt. Gox, which was one of the world's largest Bitcoin exchanges when it filed for bankruptcy after a hack that resulted in the loss of 750,000 Bitcoins (worth $450 million at the time).
Money laundering by terrorists and human traffickers
Money laundering is already a major problem, and cryptocurrency makes it even easier. One way money launderers can use cryptocurrencies is to use darknets like Tor or I2P to hide their IP address.
They then send the funds through multiple wallets, making it difficult for law enforcement agencies to track down the criminal. Another way criminals might launder money with cryptocurrency is by exchanging them for fiat currencies at unrecorded exchanges that have no KYC/AML requirements.
