Even though cryptocurrencies emerged in 2009, many people still do not know in detail what they are. In this post from EmpresaActual, we tell you what cryptocurrencies are and their advantages and disadvantages.
What are cryptocurrencies?
To begin with, you should know that cryptocurrencies – also known as bitcoins – are an intangible and decentralized means of payment alternative to traditional money. Through these virtual currencies, we can carry out operations using digital encryption, which provides security without intermediaries.
"Cryptocurrencies, especially Bitcoin, are exciting because they show how cheap it can be to move value anywhere in the world. Bitcoin is better than traditional currencies because you don't have to be physically in the same place, and, of course, traditional currencies can be quite inconvenient for large transactions. "Bill Gates, co-founder of Microsoft
How are they different from traditional coins?
Cryptocurrencies do not materialize on paper or credit cards. In this case, the money is in virtual wallets protected by a chain of blocks or databases called Blockchain. In these wallets, also called wallets, all the operations carried out by anyone who has a cryptocurrency are recorded.
What are cryptocurrencies for?
Cryptocurrencies are still currencies but digital. This means that they have the same use as any other physical currency. Thus, we can make payments between people. Companies such as Microsoft, Destinia, WordPress, among many others, already allow buying with bitcoins, or other cryptocurrencies, on their web pages.
Advantages and disadvantages of cryptocurrencies
To delve into this new way of managing money, it is interesting to know what its benefits are, as well as its risks.
In this sense, we have to point out that cryptocurrencies are characterized by being volatile. An element that is between the advantage and the disadvantage, since the user can double his earnings from one day to the next and quickly lose them.
Advantages of cryptocurrencies
They are global currencies.
These virtual currencies are not regulated by any governmental organization, such as the State, banks, financial institutions or companies. This gives the possibility of being able to use them anywhere in the world.
For example, Bitcoin claims that “in the same way that no one controls the technology behind email, Bitcoin has no owners either.” Thus, this type of cryptocurrency is controlled by all its users. Therefore, although programmers improve their software, they cannot make a change without the consent of all customers.
They are safe
According to experts, counterfeiting or duplicating cryptocurrencies is impossible, thanks to a sophisticated combination of proven cryptographic techniques. In this sense, each person has cryptographic keys necessary to carry out any digital operation.
Some cryptocurrencies are deflationary.
Cryptocurrencies such as Bitcoin or Litecoin have limited the issuance of their virtual currencies. In the case of Bitcoin, at 21 million and Litecoin at 84 million. This turns them into deflationary cryptocurrencies as the issuance of these digital currencies decreases over time.
They have irreversible transactions.
Another of its advantages is irreversible transactions. If cryptocurrencies are used, no third party can cancel or modify a transaction already carried out. This is so because they are not regulated by a central body that can access them.
Their immediacy characterizes them.
One of the advantages of e-commerce, for example, is its immediacy. If we have international clients, this payment method could greatly speed up the exchange process, especially between banks in countries that do not have agreements and have to go through a central bank, causing payment processes to be delayed several days.
They are transparent
All transactions made through the Blockchain are public. The blockchain file is stored on multiple computers on a network and not in one place. Thus, this type of storage allows it to be readable for all users, making it transparent and difficult to alter.
Disadvantages of cryptocurrencies
At the same time, we find a series of disadvantages in cryptocurrencies that may cause their non-establishment in society and their mistrust in potential and future users.
Possible loss of money
One of its main dangers, and its most risky characteristic, is that if you lose the private key to access your wallet, you lose all the money you had in it since it is virtual money. Therefore, it is advisable to have a backup of your wallet to avoid this fatal situation.
Changes and lack of regulation
Currently, work is being done on its regulation, and there are several directives of the European Union pending approval.
In Spain, given the vertiginous expansion that cryptocurrencies have been having, in particular for the use of remittances and also as an investment asset, new regulations on the matter are expected. In this sense, the State Agency for the Tax Directorate of Spain indicates that “with the fiscal risks observed in operations carried out with cryptocurrencies,” the actions will continue based on the general guidelines in the Tax and Customs Control Plan.
Why buy Bitcoin?
Today, given the popularity that this digital currency is gaining, many users have considered buying Bitcoin. And the truth is that, as a general rule, it is usually a very good option since it has many benefits.
It is the leading cryptocurrency.
As mentioned above, since the appearance of the first cryptocurrency, many have been gradually appearing. And this is because more and more pages on the Internet are beginning to accept this type of currency as a form of payment.
But, despite this, one thing is clear: there is a cryptocurrency that continues to be a leader, and that is Bitcoin. This means that, although there are pages that accept payment in cryptocurrencies, most of them are only focused on Bitcoin. Therefore, it can be said that investing in Bitcoin has the possibility of paying through it in almost any internet portal.
It is very unlikely to devalue.
One of the main advantages of Bitcoin is that it is very difficult for it to devalue. Why? Because governments do not control this currency, it is not affected by the usual economic standards that cause currencies to lose their value little by little.
In this way, buying this cryptocurrency and investing in it makes it very difficult for its value to fall precipitously. What’s more, in any case, it is common for the opposite to happen: if later on it is decided to sell, its value will increase, so that profits will be generated.
Transactions are fast and secure.
Transactions made with Bitcoin are very fast, as well as being completely secure. This decision to pay through this cryptocurrency is easy since it is reliable and does not put the user’s capital at risk. It is, in the same way, a very safe asset when investing.
In addition, it responds to the speed that society expects when carrying out economic transactions in any field.