What is Cryptocurrency? Its Types, Features, Benefits & Drawbacks Explained

Cryptocurrency types and benefits

What is a Cryptocurrency?

A cryptocurrency is a form of electronic money that does not rely on central banks or other trusted third parties to validate transactions or produce new currency units. Rather than that, it relies on encryption to verify transactions on a distributed ledger known as a blockchain.

Basically, it is โ€œInternet moneyโ€, one that isnโ€™t owned by anyone & thus, cannot be tampered with by anyone. 

Types of Cryptocurrencies:

Bitcoin, the first cryptocurrency, was created in 2009 by a programmer using the pseudonym Satoshi Nakamoto. Since then, there have been thousands of distinct cryptocurrencies in circulation, each with a unique value & usage. According to โ€œCoinMarketCapโ€, as of early 2022, there are over 14,000 cryptocurrencies and the count is growing each passing day.

Top 5 largest Cryptocurriencies:

  1. Bitcoin
  2. Ethereum
  3. Binance Coin
  4. Solana
  5. Tether

Why Cryptocurrencies are favored over Traditional Finance?

Bitcoin and other prominent cryptocurrencies are the currency of the future. Consider a transaction between two individuals who are using the bitcoin app. A notification comes, inquiring whether the individual is certain he or she is prepared to send bitcoins. 

If so, processing begins: the system verifies the user’s identification, determines whether the user possesses the necessary balance to complete the transaction, and so on. After that, the payment is processed and the funds are deposited in the receiver’s account. 

This transaction can happen between one individual from India and another individual in Uganda or Russia.

Thus, cryptocurrency eliminates all of the difficulties associated with mainstream banking. There are no restrictions on the amount of money you may move, your accounts are unhackable, and there is no single point of failure. As previously stated, there are over 14,000 cryptocurrencies available today. 

Anyone can use

Because of their easy availability and easy to use with little to no entry barrier system, today, it has grown to a multi-billion dollar industry. Investors and speculators from all walks of life have a vested interest in cryptocurrencies.

Low fees 

We all know the hidden cost involved in various investment opportunities. But, although with high-cost transactions, cryptocurrencies have yielded more than average returns to investors thus making them a low fees investment option.

No transaction limit

Crypto transactions are limitless both in regards to the number of transactions and the amount transacted. You can send or receive millions and even billions of worth with very minimal fees and at instant speed. 

24*7 availability

The banking system has advanced to the point that it now facilitates financial activities 24*7. But, they still lag behind when compared to Crypto transactions. Especially when Forex transactions are considered.

An individual or any country can send or receive billions of worth without worrying about the United States or the European Union putting sanctions on the transactions.

Lucrative and booming 

The entire crypto industry is booming in recent times, especially since the beginning of the pandemic. The various usages of cryptocurrencies are virtually unlimited and are opening up with new ventures every single day. Cryptocurrencies are beings used in the Gaming Industry and the now upcoming tech such as ‘NFT’, ‘Metaverse’, etc.

What is Metaverse? How to Invest in Metaverse? Read this article, CLICK HERE!

cryptocurrency types and benefits

Prominent uses of Cryptocurrencies:

  1. Money transfers from anywhere in the world to any corner of the world with ease.
  2. Alternative store of Wealth. A go-to option for risk takers to store wealth away from usual means such as Bond, Gold & Silver.
  3. The gaming industry is booming. And, they have chosen cryptocurrencies as their currency. Thus, online gaming has adopted various cryptocurrencies to transact. Apart from gaming, cryptocurrencies are also used in NFT Art, Metaverse, etc.

Most used Cryptocurrencies:

  1. Stellar (XLM)
  2. Ripple (XRP)
  3. Ethereum (ETH)
  4. Bitcoin (BTC)
  5. Litecoin (LTC) 

[Data from Statista – โ€œNumber of daily transactions on the blockchain in Bitcoin, Ethereum and 13 other cryptocurrencies from January 2017 to November 7, 2021โ€]

And a new cryptocurrency is launched every day. Given their current rate of growth, there’s a high probability that there will be lots more to come!

Itโ€™s not all soo bright in the crypto world! 

In recent times, some of the veteran investors have dissed cryptocurrencies altogether. People like Mr. Warren Buffett and Indiaโ€™s Big Bull Mr. Rakesh Jhunjhunwala have kept away from Cryptocurrencies.

But why? 

Why Cryptocurrency is not a safe asset for Investment?

Hackable!

Several instances have surfaced over the years of a cryptocurrency’s blockchain being hacked and the hacker made off with thousands of dollars. Recognizing this danger requires a grasp of how hacking typically occurs. 

One of the most common methods for a blockchain to be hacked is for a single person to get access to more than 50% of the blockchain’s nodes. The user can authenticate any transaction, even a false one by imposing a majority consensus through more than 50% of nodes.

High Volatility

Cryptocurrencies are highly volatile in nature. They move over 15-20% at times in either direction for no reason whatsoever! Although cryptocurrencies offer a high risk – high return investment option, they at times offer stupidly high risk with unimaginable wealth and at times wealth destruction too.

More like make it or break it kind of investments wherein an investor could literally lose all of his/her investments in a blink of an eye!

Speculative 

Investing in cryptocurrency in most cases has been speculative. Thus, most of the Value Investing community stayed away from this asset class for they find โ€œZeroโ€ value in it.

In most cases, these cryptocurrencies offer no base of understanding. They are not traded based on any specific reasons whatsoever. And are a pure means of speculation traded from one onto the other in just hopes that the other person pays more than what the prior paid.

Should you Invest in Bitcoin? Is it Worth Investing? Read this article, CLICK HERE!

No future 

Many still believe that cryptocurrencies do not possess any future. Because going against the government is something none could win. And, cryptocurrencies are doing exactly that! Which may make them obsolete in near future one way or the other.

Cryptocurrencies need to be accepted by large. If not, they die a natural death taking in all those who invested in them. For more information in regards to whether Bitcoin can topple US Dollar? Read this, CLICK HERE!

Conclusion:

When it comes to cryptocurrencies, our financial world is plainly split. On the one hand, advocates like Bill Gates, Al Gore, and Richard Branson argue that cryptocurrencies are superior to traditional currencies. On the other hand, there are many who are opposed to it, including Warren Buffet, Rakesh Jhunjhunwala, Paul Krugman, and Robert Shiller. Krugman and Shiller, both Nobel laureates in economics, see it as a Ponzi scam and a vehicle for criminal activity.

There will always be a contradiction between regulation and anonymity in the future. Given the association of certain cryptocurrencies with terrorist activities, governments would seek to control how cryptocurrencies operate. On the other hand, the primary goal of cryptocurrencies is to maintain user anonymity.

By 2030, futurists anticipate that cryptocurrencies will account for 25% of national currencies, implying that a sizable portion of the globe will use bitcoin as a medium of payment. It will continue to gain merchant and consumer acceptance, and its volatile nature will imply that prices will continue to vary, as they have for the last few years.

By and large, investing in cryptocurrencies is similar to investing in any other asset. Just as advertisements for mutual fund investments include a lengthy disclaimer at the conclusion, consider this article to be that lengthy disclaimer for bitcoin investments. 

Prudent and fundamental security procedures will go a long way toward protecting your crypto investments.

An Indian can invest in Cryptocurrency via the “WazirX” application. To know more about WazirX, CLICK HERE!

For More Information, Check this Video:

Disclaimer: All the information on this website is published in good faith and for general information purposes only.

Also read:

How to Invest in Index Funds?
Top 10 Investments to Earn Monthly Income
What is Stock Buyback? Benefits & Drawbacks explained with Example
What is Equity Fund Investing? Features, Benefits, Drawbacks, & Types Explained.
What is SIP? Its Types, Benefits & Drawbacks explained.

Leave a Comment

Your email address will not be published. Required fields are marked *

error: Content is protected !!
Top Twelve (12) Three Wheeler Auto Players: Top Nine (9) Sanitary Ceramics Manufacturer in India: Industry-wise Shareholding of Mutual Funds: Top Ten (10) Nations’ GDP (Nominal) & Per Capita: Top 10 Most World Popular Social Media Platforms: Top 10 Major Players in UPI Market: Order Book of the Leading Defence Companies: Top 12 Auto Companies Proposed Investments Under PLI: Top Fifteen (15) Companies with High DII Holdings: Companies with Biggest Capex Plans in FY23: