13 Advantages of Cryptocurrency: a Beginner’s Guide

Published: 5th July, 2024 | Last Updated: 1st July, 2024

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

In this post, I will explain the main advantages of cryptocurrency. The infographic below lists them at a glance.

infographic advantages of cryptocurrency

Also, see the differences between crypto and bitcoin.

13 Benefits of Cryptocurrency

Benefits of Cryptocurrency

1. There is no central authority

One of the main benefits is that there is no central authority that can dictate who owns what and how much of a coin can be minted.

By definition, cryptocurrencies live on distributed ledgers known as blockchains.

Anyone can have a copy of the blockchain to see which address owns how much crypto. 

In recent years, inflation rates have soared across the world. This is a result of central banks printing too much money in response to the economic collapse caused by the COVID-19 pandemic.

Bitcoin emerged as a response to the printing of money to bail out financial institutions during the housing crisis of 2008. 

On Bitcoin’s Genesis block, Bitcoin’s creator, Satoshi Nakamoto, inscribed the following headline from The Times newspaper. 

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” 

This indicates that the development of Bitcoin was in response to the indiscriminate printing of money in the United States and elsewhere.

2. Permissionless. 

Anyone can verify transactions on a blockchain, contribute to its code, or copy it and make something else. This makes it almost impossible to shut blockchains down.

Some countries such as Bangladesh, China, Egypt, Iraq, Morocco, Nepal, and Qatar have tried banning crypto mining, but this has just resulted in miners moving to other jurisdictions. 

3. Immutable

Information on a blockchain, such as crypto transactions, is immutable.

This means the information is set in stone and cannot be changed.

As a result, people can trust the information contained in a blockchain.

This is useful for financial transactions and any other data a blockchain might contain, such as medical records, supply chain data, or identifying information. 

4. Low transaction fees and fast transactions

The advent of cryptocurrencies means that you can send someone millions of dollars within a few seconds or minutes while paying just a few dollars or cents.

Transaction costs within the traditional financial system are much higher and take days.

When you want to wire someone money in another country, it can take 2-5 business days.

In addition, you have to go through various security hurdles when sending large amounts of money.

In contrast, this is not the case with crypto.

You can send millions of dollars worth of crypto assets at fractions of a dollar in terms of cost. 

5. Transparency

With many cryptocurrencies, anyone can check the public ledger to verify that a transaction has been made.

This means that financial transactions are transparent.

Imagine a world where you can see where the bank invested your money, track if your food was stored at an appropriate temperature, and check if the person voting is not voting twice. 

6. Security

Cryptocurrencies use cryptographic techniques to secure transactions, making them highly secure and less susceptible to hacking.

While crypto scams are frequent, they do not happen on the blockchain level. Rather, they happen with the peripheral software that has been built for the ecosystem or just by tricking people. 

7. Privacy

While transactions are transparent, the identities of the individuals involved in transactions can remain anonymous, providing a level of privacy.

Some cryptocurrencies, such as Monero and ZCash, offer 100% privacy, while others use pseudonymous transactions.

Conversely, such transactions are not so great for illicit activities because the money can be traced.

There are ways around this, but many still prefer cash.

8. Global Reach

Cryptocurrencies can be sent and received anywhere worldwide, breaking down geographical barriers and facilitating global commerce.

9. Accessibility

Bitcoin Mining Facility

Cryptocurrencies provide financial services to unbanked and underbanked populations who may not have access to traditional banking systems.

This is true to the extent that people can access a phone and an internet connection.

However, the infrastructure to provide those who are poor with customized banking services does not yet exist in the world of crypto.

Still, if you ask anyone in Argentina or Venezuela whether they prefer Bitcoin as their local fiat currency, they will choose Bitcoin over pesos. 

For most people, it is easy to buy and sell cryptocurrencies. You can do this on cryptocurrency exchanges, Bitcoin ATMs, or peer-to-peer platforms.

To purchase digital assets on a crypto exchange, you only need to deposit cash and start buying.

Most exchanges accept the following deposit methods.

  • ACH in the US and Interac eTransfers in Canada are nearly instant
  • Wire transfers such as SWIFT/SEPA take a couple of business days
  • Prepaid cards and debit cards are instant but cost more. Some platforms also accept credit cards.

10. Ownership

Digital currencies can be stored in a crypto wallet, which only you can access.

A digital wallet is a piece of software that securely stores your codes so that you can directly transact with blockchains.

Think of it like an internet browser but for blockchains.

Using a cryptocurrency wallet is equivalent to having cash in a bank account, except you own the bank.

11. High returns

Over the long run, established cryptocurrencies such as Bitcoin and Ethereum have delivered outsized returns.

Had you invested $5,000 in Bitcoin in 2022, it would now be worth $65,000. Many who believe in Bitcoin as a store of value believe that this trend will continue. 

12. Tokenize the world

Cryptocurrencies allow you to issue tokens to represent real-world assets such as real estate, stocks, bonds, treasuries, and more.

This will make transacting in these products much easier.

Imagine if, instead of buying a house, you could buy a fraction of an office in the US, a fraction of a hotel in Thailand, and a fraction of a summer home in France.

This would ensure a diversified portfolio of assets that would be less susceptible to outside shocks.

It would also mean you could start investing no matter how much you earn. 

13. Applications

With the advent of blockchains such as Ethereum, it is now possible to build autonomous apps that offer various financial services.

Lending, borrowing, buying, and selling can now be decentralized using a protocol that runs on its own.

There are thousands of applications built on top of the Ethereum blockchain and its competitors.

And it is not just financial services. You have marketplaces, crowdsourcing of infrastructure, gaming, and more. 

7 Disadvantages of Cryptocurrency

Disadvantages of Cryptocurrency

1. Environmental impact

Bitcoin mining requires a lot of electricity. It is estimated that Bitcoin consumes 91 terawatts of electricity.

That’s more energy than a small country such as Austria or the Philippines consumes.

Bitcoiners argue that 50% of this is from renewable energy sources.

Also, not all coins require high energy consumption. Most cryptocurrencies use a Proof of Stake consensus mechanism, which is not energy-intensive. 

2. Crypto is used for money laundering and other illegal activities

This argument breaks down when you realize that most cryptocurrency transactions are traceable.

Also, most fiat onboarding platforms, such as crypto exchanges, require you to go through a verification process.

However, there are ways for people to obscure the source of their funds for criminal activities, and this is still a concern for authorities. 

3. The cryptocurrency market is volatile

Investing in cryptocurrencies can result in significant losses, especially if you don’t know what you are doing. You can use sites such as ElementalCrypto to educate yourself. 

4. Storing crypto is a hassle. 

While it’s nice that you can securely store your assets in a wallet, it bestows responsibility on the holder of the assets to not lose their funds or codes.

If you lose your private keys, there is no one to help you recover them.

On the other hand, if you use backup solutions, you risk getting hacked.

A more recent risk is that if hackers know where you live, they might come after you for your crypto by threatening you, something that doesn’t happen when you place your cash in the bank. 

5. Learning curve

Understanding how cryptocurrencies work involves a steep learning curve. There are many resources out there, including this site and my crypto crash course; however, you still need to spend some time studying.

At the time of writing, crypto has become an electoral topic in the US, and both parties are trying to play catch up to understand it. 

6. Lack of consumer protection

When you store your cash at the bank, the FDIC insures your money for up to $250,000 in case the bank becomes insolvent.

With crypto, there is no one to cover your loss if your virtual currency is stolen.

Some crypto exchanges take out insurance on their user’s funds.

However, this might not cover the full amount in case of a hack or bankruptcy.

7. Lack of regulations

The lack of government regulations in many countries means that you are operating in a grey zone when it comes to crypto.

In contrast, some countries have given guidance on how to declare digital money and pay taxes on it, but most haven’t.

You can expect to pay capital gains of 15% to 20% on any profits you make from trading.

In most countries, crypto is not legal tender. Exceptions are El Salvador and the Central African Republic, which now accept Bitcoin as legal tender. 

FAQs

Why do people invest in crypto?

People invest in crypto either for the short term or the long term. Short-term view investing in crypto opportunistically. They don’t care what will happen to crypto in 20 years. All they care about is that crypto is hot right now, which means there is an opportunity to make money. Long-term prospectors believe that crypto is here to stay. They often only invest in Bitcoin and Ethereum and expect these assets to continue to appreciate in value over a long-term time horizon. 

What is the biggest risk in crypto?

The biggest risk with crypto is that you buy high and sell low. This is an easy and common way to lose your money. In addition, the industry is riddled with scams. People who don’t understand how the technology works might click on a spam link and lose their assets. 

Is crypto good or bad for the economy?

Cryptocurrency is more efficient than the traditional financial system. Bitcoiners argue that if Bitcoin becomes widely adopted, it will ensure the right incentives.

Banks won’t be too big to fail and will take the necessary precautions to ensure they don’t invest their assets irresponsibly.

Users won’t be exposed to inflation, which is an indirect tax on their savings.

The US economy in particular benefits from the increased demand for stablecoins that are pegged and backed by US treasuries. This is especially helpful now that the world is no longer forced to purchase oil in dollars. 

Why is cryptocurrency so safe?

Cryptocurrency is considered safe due to its decentralized nature, strong cryptographic security, and blockchain technology, which ensures transparency, immutability, and resistance to fraud and hacking.

What is the biggest problem with crypto?

The biggest problem with crypto is its high volatility, leading to significant price fluctuations and financial risk for investors.

Is crypto riskier than stocks?

Yes, cryptocurrencies are way more volatile than stocks. According to a study by Duke University, investing a quarter of your funds into crypto is as volatile as investing all your savings into stocks. 

Is crypto actually useful?

Yes, crypto is useful for providing fast, low-cost international transactions, financial inclusion for the unbanked, decentralized finance (DeFi) applications, and secure, transparent record-keeping through blockchain technology.

Cryptocurrencies offer several practical uses that highlight their utility:

  1. Fast, Low-Cost International Transactions: Cryptocurrencies enable quick and inexpensive cross-border payments, bypassing traditional banking systems that can be slow and costly. This is especially beneficial for remittances and international business transactions.
  2. Financial Inclusion: Cryptocurrencies provide financial services to people who are unbanked or underbanked, offering access to financial tools and services without the need for a traditional bank account. This can empower individuals in developing countries and remote areas.
  3. Decentralized Finance (DeFi): DeFi platforms leverage cryptocurrencies to create decentralized financial services like lending, borrowing, and trading without intermediaries. This can reduce costs, increase access, and improve transparency in financial services.
  4. Secure and Transparent Record-Keeping: Blockchain technology, the backbone of cryptocurrencies, ensures secure, transparent, and immutable record-keeping. This can be applied beyond finance, such as in supply chain management, voting systems, and healthcare records.
  5. Programmable Money and Smart Contracts: Cryptocurrencies like Ethereum support smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. This enables automated and trustless transactions, reducing the need for intermediaries and increasing efficiency.
  6. Store of Value and Investment: Cryptocurrencies like Bitcoin are seen as a store of value, akin to digital gold. They provide an alternative investment opportunity, especially in times of economic uncertainty or in regions with unstable currencies.
  7. Innovation and Technological Advancement: The development and use of cryptocurrencies drive innovation in various fields, including cryptography, network security, and distributed computing, fostering technological advancements that can benefit other industries.
Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

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