Digital currency pros and cons
Digital currency has pros and cons like any new technology. How you weigh these up will determine how willing you are to embrace cryptocurrency and how they stack up over time will be key to which currencies succeed and which fail. Here are three of the biggest pros and three of the biggest cons of digital currency today.
1. Secure: One of the aims of Bitcoin, which launched the cryptocurrency boom, was to deal with the problem of double spending that had always held back digital currencies. Without a central authority evaluating transactions, it is possible for someone to copy their currency information and spend the same money twice. Bitcoin prevents this by using the blockchain – a networked system in which one computer does the work needed to verify a transaction and then transmits that ‘proof of work’ to every other node on the network. Once the transaction is added to the blockchain it becomes near impossible to alter, adding to the security of the system.
2. Decentralised: That network-based approach means that cryptocurrencies are decentralised – no one node on the network can control the currency. This is different from the way a traditional, or ‘fiat’ currency operates, which relies on a central bank or government to underwrite and manage the currency.
3. Low cost: Without a central source acting as a gatekeeper, transaction costs for digital currency can be kept low. This can make it more efficient to use digital currency as a means to, for example, send money to another country.
1. Lack of regulation: Cryptocurrencies are still new enough that regulators are only beginning to come to grips with them. Some, such as the Securities and Exchange Commission in the US, are treating them with caution; keen to protect investors from a bubble. Others, for example regulators in China, have called on local governments to encourage cryptocurrency mining. This period, while the regulation is settled is a difficult time for users of cryptocurrency, who may find their use being more restricted in future. More immediately, the lack of regulation means that digital currency owners who lose their money, by accident or through theft, are unlikely to have much protection.
2. Volatility: The rapidly rising price of some cryptocurrencies, particularly Bitcoin, has led investors to jump on them in the hope of realising similar returns. However, these digital currencies have proved to be highly volatile, with prices as likely to suddenly crash as they are to soar.
3. The use case: Critics of digital currencies maintain that there is still no use case for which a traditional currency could not be used. In some cases, the digital currency might be slightly cheaper or slightly faster to use than a fiat currency but that, say critics, is not enough to justify mass adoption of these currencies. Without mass adoption they are unlikely to see the kind of growth needed for them to truly fulfil their potential.