Cryptocurrency is a digital asset that is primarily used as a transactional medium to secure financial transactions, control the creation of additional assets and verify any transfers of assets with the help of strong cryptographic technology. It is also known as a form of digital currency or virtual currency. Unlike central banking systems, it is a blockchain-based decentralized financial control and transaction system that is primarily used in financial transactions.
The first decentralized virtual currency developed in 2009 is Bitcoin, commonly known as a virtual monetary unit, and it works independently without the help of any central bank or official. Since then, around 4,000 altcoins have been developed from various types of Bitcoin. Bitcoin is a peer-to-peer electronic cash system where users make transactions directly without any middleman.
Blockchain is a data file made up of many blocks that keep records of all previous Bitcoin transactions and also create new ones. The average normal time between each block is about 10 minutes. The most common use of Bitcoin is supported by an external program called Bitcoin wallet. With this software, one can easily store, receive and manage Bitcoin unit transactions. In order to conduct transactions with Bitcoin, one needs to have an account on any of the bitcoin exchanges around the world and have to transfer the fiat currency to that account. Thus the account holder can conduct future transactions with these funds. Aside from Bitcoin, some of the other sources of cryptocurrency are petroleum that is mainly used for oil and mineral reserves.
There are some pros and cons associated with the use of digital currency. The main benefits of using virtual currency are as follows: –
Provides a quick layer of transparency: –
Bitcoin usually works with the help of a ledger called Blockchain that records and monitors every transaction. Once a transaction is made and recorded in this ledger, it is considered invariant. These transactions can be further verified at any time in the future, thus in addition to this, they also guarantee security and privacy regarding all transactions made through a particular account.
Rapid Processing and Portable Use: –
Billions of dollars of Bitcoin can be easily transferred from one place to another without any discovery with the help of a single memory drive. While conducting any type of transaction, the participation of any third party can be eliminated by using this Bitcoin technology. This will result in an easy and fast transaction without any approval from a third party,
Lower transaction costs involved: –
The transaction costs involved in exchanging these digital currencies are much lower making them more affordable compared to the real currency of the population around the world. Hence, the cost of any type of transaction being undertaken is much less which makes it a beneficial feature for the population when they undertake any transactions.
Struggle and eradicate poverty: –
Often banking systems and financial institutions do not provide assistance or assistance, especially to the backward classes in rural areas. Bitcoin acts as an alternative in such situations as it expands its robust financial services to anyone with access to the Internet. It often acts as a support for the poor and downtrodden classes which in most cases are not given any viable alternative.
When a new or newer technology arrives, there are some negative factors associated with its use, which are as follows: –
Lack of knowledge and distrust in the population approach: –
Due to a lack of knowledge regarding digital currency, people are likely to become uncertain about its widespread use. Consequently, there are only very few business systems that accept these cryptocurrency sources, thus limiting business systems that prefer to use virtual currency in their daily transactions.
Non-trackable transactions: –
Since the transactions made with Bitcoin cannot be tracked, it provides a space for criminal transactions. In such cases, it is drug dealers and meticulous people who use this virtual currency so that their illegal activities are not easily detected.
Nature of volatility and uncertainty: –
Cryptocurrency is at times volatile and constantly changing over a wide range. Sometimes, people earn a large amount of money when the market prices of these virtual currencies go up, and sometimes they also face a big loss when the price collapses.
Cryptocurrency is an innovative but amateur concept that can disrupt the entire financial market. It is true that this digital currency has attracted the world’s attention in a short period of time. There are always advantages and disadvantages to every new technology that appears on the market. In order to get the most out of it, one needs to consider both sides before making any decisions.