All The Pros & Cons You Need To Know About Cryptocurrency Coins

What Is Cryptocurrency?

A cryptocurrency refers to a digital medium of exchange (currency) that utilizes complex mathematical and scientific encryption and algorithms to generate and verify transactions that involve money. Any transaction that takes place is added onto a public ledger called the blockchain. New cryptocurrency coins are generated through a process referred to as mining. Some of the most common cryptocurrencies in use today include Bitcoins, Ethereum and Litecoins. Today, there are more than 500 cryptocurrencies that can be traded online. As of November 2017, all cryptocurrencies had a total market capitalization of more than $100 billion. This exposes firms to the challenge of evolving with new technologies as they try to remain attractive to millennial customers. It is therefore very important that businesses understand what cryptocurrencies are and how they work.

How Cryptocurrencies Work

A cryptocurrency is a peer-to-peer digital currency that allows different people to trade anonymously. There is no intermediary and transactions take place between the two parties only. This information is then stored in a public ledger that cannot be edited. For a currency to qualify as a cryptocurrency, it must have a public ledger that records all the transactions and the actual currencies must be obtained through solving complex mathematical problem in a process referred to as mining.

With cryptocurrencies, the identities of the involved parties remain anonymous. This is made possible through the use of encryption. Mining can be done by anyone. After a transaction, all this information is recorded in a ledger that can be accessed by anyone. Cryptocurrencies are stored in electronic wallets. Each wallet has a unique address that identifies the owner without revealing their details. For you to send this digital currency, for instance, all you need is the wallet address of the recipient. This means that the receiver will not be able to know your details, except for your wallet address. Likewise, you will not be able to know the recipient, except for his or her wallet address.

One advantage that digital payments have over the traditional currencies is that they are decentralized. Since they are peer-to-peer enabled, they are able to bypass the normal currency structures where a central bank is usually involved. As such, transactions involving cryptocurrencies are fast as they do not have to wait for approvals from third parties. Despite geographical barriers, it only takes a few minutes before a transaction is complete. This is unlike with traditional currencies where it takes a lot of time before money is transferred from one continent to another.

The Pros Of Cryptocurrencies

Digital currencies are fraud-proof. It is safer to deal with digital currencies that to deal with real currency. Since they operate based on blockchain technology, there can never be instances of identity theft and forged passwords. The sender of the currency cannot reverse a transaction as is the case with some other forms of payment.

There has never been even a single incident of identity theft of cryptocurrencies. Credit cards are often stolen and forged, especially when you give someone your card to deduct a certain amount. With digital currencies, the owner of a wallet determines the exact amount he wants to send and the intended recipient. As such, there is a zero chance of identity theft.

Transacting in digital currencies is quicker and more convenient. There are no third party approvals required. The transactions only involve the sender and the recipient. Apart from the actual sending, there are no other formalities involved.

Finally, transacting in digital currencies is cheaper than when transacting with normal currencies. This is because there is no third party involved. This means that there is no handling fee or processing fee to be paid.

The Cons Of Cryptocurrencies

There is no central body tasked with regulating digital currencies. This means that people are not fully protected from fraudsters. There is no guaranteed security. In the event that investors lose their money, there is nothing much that they can do.

Cryptocurrencies are not accepted universally. Most businesses and countries do not recognize the use of cryptocurrencies as a legal means of payment. This limits the use of cryptocurrencies to several retailers and countries only.

There is uncertainty that surrounds cryptocurrencies. This is because most government organizations such as banks are against the adoption of digital currencies. This has made people fear using it. Uncertainty also exists as people are not very sure on the future of digital currencies. Some fear that it will eventually blow up and people will lose their money.