Digital currencies are stirring organizations and markets worldwide, extolling the promise of economic freedom for all through decentralization. Blockchain technology is at the foundation of crypto’s appeal, which brings profound innovation to various sectors, especially the financial sector.
Learning how the two are connected is necessary to understand crypto and blockchain’s benefits.
The connection between cryptocurrency and blockchain
A blockchain is a database (or ledger) of transactions (or agreements) in a computer network.
Cryptocurrency transactions are represented by digital transactions (smart contracts) that enforce predetermined details, such as the type of crypto, who sends, who receives, and the amount. When a new set of transactions are required, they are processed in blocks and recorded on public ledgers.
In addition, the software code that powers the blockchain is open and open source, so all developers can use it to build decentralized apps on the blockchain on Dapps. This is a significant benefit for companies creating Dapps that offer specific solutions.
Investor Satoshi Nakamoto (pseudonym) first applied blockchain technology to cryptocurrency with the introduction of Bitcoin in 2008.
Today it is only possible to talk about blockchain and its benefits by talking about cryptocurrency. Over the past 12 years, thanks to the growing interest in blockchain and the popularity of Bitcoin, the crypto industry has exploded.
Today, cryptocurrencies and tokens are what nurture blockchain-based ecosystems. They serve to respond to various problems present in the markets and work in particular ways. To get more information about crypto, visit one of the most popular trading platforms eToro, or explore crypto csgo at https://thunderpick.io/en/esports/csgo to learn how to bet on eSports with cryptocurrencies.
The benefits of cryptocurrency
Bitcoin was first created in 2009, just after the 2007-2008 crisis, which gave rise to growing public frustration with the dysfunction of centralized systems. The dissolution of those banks deemed “too big to fail” highlighted the stark reality of counterparty risk.
Lehman Brothers, for example, was America’s fourth-largest investment bank when it began the bankruptcy process in 2008. Its closure caused a shock to the entire financial system, requiring a $700 billion bailout.
Cryptocurrency offers a decentralized framework that levels the playing field by eliminating intermediaries and enabling individuals to transact independently (and peer-to-peer).
As a result, cryptocurrency offers the following advantages:
Low transaction costs
Because transactions take place peer-to-peer and do not require intermediaries, transaction costs are minimal. For example, international funds transfer through a centralized bank, such as Bank of America, includes costs related to conversion. However, decentralized systems do not include currency exchange costs.
In addition to these costs, transaction times due to procedures are also greater in centralized authorities. Cryptocurrency solves this problem by enabling near-instantaneous payments.
It reduces fraud risk
Individuals and businesses often deal with strangers when buying and selling products. Unfortunately, this can lead to eventual scams. While there will always be someone trying to scam the system, the technology behind cryptocurrencies helps reduce this risk, as transactions on the blockchain are transparent and cannot be changed.
We may live in a connected world, but using traditional systems can complicate transactions across different geographies and policies. Cryptocurrency leverages decentralization to equalize access to the financial infrastructure and serve the underserved.
As a result, everyone can access cryptocurrency from anywhere in the world without interference from any centralized authority.
What are the main disadvantages of cryptocurrencies?
So far, we have only talked about benefits. However, cryptocurrencies also have disadvantages; let’s see what they are.
The legal status of bitcoin varies significantly from country to country; while in some states, the use of bitcoins is encouraged, it has been banned and made illegal in other states.
Accessing a bitcoin wallet requires an alphanumeric code, and losing one’s key means permanently losing access to one’s wallet. Whereas if we lose passwords to access our bank account, we go to the bank, in this case, lacking a central authority: if you lose your key, you lose access to your wallet.
The bitcoin price goes up and down constantly, and its value is unpredictable. Therefore, it can change drastically and very quickly. For this reason, bitcoin is considered a high-risk asset class, and keeping a percentage of one’s portfolio invested in cryptocurrencies too high is not advisable.
The role of bitcoins as a store of value is seriously undermined by high price volatility. Moreover, such volatility also undermines bitcoin’s role as a medium of exchange, as large retail chains are much less likely to accept it as a form of payment.
It is not an official currency
Since legal systems require a tax payment on anything of value, it is the user’s responsibility to pay taxes and comply with the regulations dictated by the government.
While some individuals do not want their money tracked and managed by outside authorities, Bitcoin’s anonymity may support illegal activities such as drug trading and terrorism.