Destinee Brinkley
Cryptocurrency, also known as crypto, is any form of currency that exists digitally or virtually and uses cryptography to secure transactions according to Kaspersky. Most cryptocurrencies don’t have a central issuing or regulating authority, instead they use a decentralized system to record transactions and issue new units.
Through a digital payment system, cryptocurrency does not rely on banks to verify transactions. Instead, it’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Payments exist purely as digital entries to an online database describing specific transactions, instead of having physical money carried around and exchanged in the real world. When transferring cryptocurrency funds, the transactions are recorded in a public ledger and from there, the currency is stored in digital wallets.
Well how does cryptocurrency work ? Cryptocurrencies run on a distributed public ledger called blockchain, a record of all transactions updated and held by currency holders. Through a process of mining, which includes using computer power to solve complicated math problems that generate coins. Users that use crypto can buy the currencies from brokers, then store and spend them using cryptographic wallets.
Many experts, according to Investopedia, believe that blockchain and related technology will disrupt many industries, including finance and law. Central to the appeal and functionality of Bitcoin and other cryptocurrencies is blockchain technology. As its name indicates, blockchain is essentially a set of connected blocks or an online ledger. Each block contains a set of transactions that have been independently verified by each member of the network. Every new block generated must be verified by each node before being confirmed, making it almost impossible to forge transaction histories. The content of the online ledger must be agreed upon by the network of an individual node, or computer maintaining a copy of the ledger.
As such, it’s important to identify and to understand the drawbacks and obstacles that may refrain mainstream adoption of these technologies. With cryptocurrency, according to CEO Magazine there are numerous disadvantages that come along with this new money series. One being scalability, which is the biggest concern with crypto. While the number of digital coins and adoption are rapidly increasing, it is still dwarfed by the number of transactions that payment giant Giant, VISA, processes each day. Adding to that, the speed of a transaction is another metric that cannot compete with same level as players like VISA and Mastercard until the infrastructure delivering these technologies is massively scaled. Such an evolution is complex and difficult to do seamlessly.
Another disadvantage is since cryptocurrencies will be subject to cybersecurity breaches and may fall into the hands of hackers. According to N26, we have already seen evidence of this, with multiple ICO’s getting breached and costing investors hundreds of millions of dollars this summer alone. Mitigating this will require continuous upkeep of security infrastructure, but we are already seeing many players dealing with this directly, and using enhanced cybersecurity measures that go beyond those used in traditional banking industries.
Price volatility, The Suffolk Journal says lack of inherent value and regulations also play a big part in the disadvantages when it comes to cryptocurrency. Price volatility, tied to a lack of inherent value, is a major problem and one of the specifics that Buffet referred to specifically a few weeks ago when he characterized the cryptocurrency
ecosystem as a bubble. It is an important concern, but once which can be overcome by linking the cryptocurrency value directly to tangible and intangible assets. Increased adoption should also increase consumer confidence and decrease this volatility.
Regulations increase risk in investing in this technology. Even if we perfect the technology and get rid of all the problems that go into this until the technology is adopted by federal governments and regulated , the risk will still be increased. Other concerns with the technology are mostly logistical in nature. For example, changing protocols, which becomes necessary when the tech is being improved, can take quite a long time. It would also interrupt the normal flow of operations.
Since the government has no control or regulation of the private sector’s creation of cryptocurrencies, this leaves it unrestricted and without support. This implies that criminals have access and the ability to use cryptocurrency as a way of scamming unsuspected investors. More than half of all Bitcoin transactions are linked to unlawful behavior, according to an academic report published in 2019.
In the end, with all the potential barriers to mass adoption, it is logical that experienced investors like Warren Buffet choose to err on the safe side of this technology. Yet, we know that cryptocurrencies will be here to stay. They offer too many things consumers seek in a currency today and into the future. Expanding the discussion to everything that blockchain can accomplish across numerous industries doubly reinforces this point.
Work Cited
Pros and cons of cryptocurrency: A beginner’s guide. N26. (n.d.). Retrieved November 18, 2022, from https://n26.com/en-eu/blog/pros-and-cons-of-cryptocurrency
Dreher, G. (n.d.). Cryptocurrencies and their negative impacts on the environment. The Suffolk Journal. Retrieved November 18, 2022, from https://thesuffolkjournal.com/36981/world-news-at-suffolk/cryptocurrencies-and-their-negative-impacts-on-the-environment/
Reiff, N. (2022, October 20). What’s the environmental impact of cryptocurrency? Investopedia. Retrieved November 18, 2022, from https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/
Dreher, G. (n.d.). Cryptocurrencies and their negative impacts on the environment. The Suffolk Journal. Retrieved November 18, 2022, from https://thesuffolkjournal.com/36981/world-news-at-suffolk/cryptocurrencies-and-their-negative-impacts-on-the-environment/
Stones, M. (2021, November 18). The environmental consequences of cryptocurrency mining. New York League of Conservation Voters. Retrieved November 18, 2022, from https://nylcv.org/news/the-environmental-consequences-of-cryptocurrency-mining/ Advantages and disadvantages of cryptocurrency in 2020. GeeksforGeeks. (2022, September 30). Retrieved November 18, 2022, from https://www.geeksforgeeks.org/advantages-and-disadvantages-of-cryptocurrency-in-2020/
Categories: Education, Finance, Technology
