What Is a Digital Currency?
You may have heard about Bitcoin, Ethereum, and Litecoin, but what exactly are they? Bitcoin is a digital or virtual asset designed to work as a medium of exchange that uses cryptography to secure its transactions and to control the creation of new units. Ethereum is a decentralized platform that runs smart contracts. These apps run on a blockchain, which is a distributed public ledger. Litecoin is a cryptocurrency that Ripple with Option Trade was created with the intention of being faster and cheaper to transaction than Bitcoin. Now that you know what they are, let’s go over the pros and cons of using crypto currency.
Features of a digital currency.
Digital currencies only exist in digital form and can be centralized or decentralized. They can transfer value and extend the concept of what a currency can be used for.
Most digital currencies are decentralized, meaning there is no government or financial institution that controls them. Bitcoin, for example, is decentralized and no one can control it. Decentralized digital currencies are often more volatile than centralized ones.
Some Characteristics of Digital Currencies are
- Cryptocurrencies only exist electronically and do not have a physical form.
- Cryptocurrencies can be centralized or decentralized.
- Cryptocurrencies can be used to transfer value. Digital currencies can transfer value, which requires a mental shift in the existing framework for currencies. Digital currencies are associated with sale and purchase transactions for goods and services, but they can also extend the concept. For example, a gaming network token can extend the life of a player or provide them with extra superpowers. This is not a purchase or sale transaction but, instead, represents a transfer of value.
Pros of crypto:
•Faster Transactions- Crypto currencies are able to be sent anywhere in the world within seconds. There are no bank holidays or weekends when sending crypto currency.
•Lower Fees- When you send crypto currency, the fees are usually lower than if you were to send money through a bank.
•Decentralized- No one person or group controls crypto currency. It is not subject to government regulation either. This could be seen as both a pro and a con.
•Anonymous- When you set up a crypto currency wallet, you do not have to provide your name or any other personal information.
Cons of crypto:
•Volatile- The value of crypto currency can change very quickly. For example, in December 2017, the price of Bitcoin reached almost $20,000 USD. In March 2020, the price had dropped to around $3,700 USD. Then in November the price peaked at around $69,000. As it stands one year later Bitcoin is currently trading at $21,000.
•Not Widely Accepted- While there are many businesses that accept crypto currency as payment, it is not yet accepted everywhere. Most people still use fiat currency (government issued currency like USD).
•Hacking Risks- When you store your crypto currency in a digital wallet, there is always the risk that it could be hacked. If this happens, you could lose all of your money.
There are pros and cons to using crypto currency. Some people believe that it is the future of money while others think it is too risky. It is important to do your own research and decide if investing in crypto currency is right for you.
The Bottom Line
Cryptocurrencies have captured the imagination of some, struck fear among others and eluded the understanding of many. Nevertheless, as with any new and disruptive technology, it is important to separate the wheat from the chaff when it comes to investing in cryptocurrencies. While there are certainly risks involved in buying cryptocurrencies, there are also potential rewards. By understanding