Since the invention and introduction of blockchain technology and cryptocurrency, the financial realm has seen a massive change in its operations and how transactions are made. However, before I delve into how cryptocurrency has shaped the financial realm, let me first give a brief overview of cryptocurrency and what it is...
The term cryptocurrency basically refers to digital currency that runs on the blockchain. As a digital currency, it means that it can be used as a store of value like bitcoin or to send and receive money from one person to another in any part of the world or as a medium of exchange faster without any third party interference or barrier. Bitcoin was the first ever cryptocurrency to be created that runs on the blockchain (bitcoin blockchain). Cryptocurrency transactions are recorded on the blockchain.
These cryptocurrency transactions on the blockchain is transparent and cannot be altered or changed. In other words, once a cryptocurrency transaction is recorded and stored on the blockchain, it immediately inherits the benefits of the blockchain. Cryptocurrency has seen massive growth since its inception few years ago and has since achieved massive adoption. While cryptocurrency is a digital currency that is used as a medium of exchange or store of value, it has grown to be much more.
At the moment, the main types of cryptocurrencies are coins or tokens. Tokens are cryptocurrencies that can be created without the need to create its own blockchain and can be deployed on any blockchain that supports token creation such as ethereum blockchain etc. Creating tokens is a lot easier as there are tools that make it easier to create and deploy tokens on certain blockchains. Coins on the other hand are the true cryptocurrency that runs on its own blockchain such as bitcoin, ethereum, litecoin etc.
Unlike tokens, creating a coin is much more difficult as it requires high level technical skills and proper understanding of blockchain technology and cryptocurrency, and also a blockchain to be developed before the coin can be created. Now, cryptocurrencies can be used in more advanced ways aside digital currency to send and receive money or make payments for goods and services.
Cryptocurrencies has proven to offer a lot of benefits compared to the traditional and conventional currencies such as paper money. In the next section of this post, I will be drawing out some of the comparisons in regards to the benefits of cryptocurrencies compared to the conventional currencies…
Similarities Between Cryptocurrency and Conventional Currencies
Both cryptocurrencies and conventional currencies can be used for payments - This is one of the major use cases of any currency as they can be used to send and receive payments for products or services.
Both cryptocurrencies and conventional currencies can increase or decrease in value - Currencies can increase or decrease in value depending on various factors such as sentiments, economic situations, inflation, supply and demand.
Both cryptocurrencies and conventional currencies can be used as a store of value - Currencies can be used as a store of value as there are certain currencies that can hold its value or is more likely to keep increasing in value due to many favorable factors like strong economic power and sentiments.
Both cryptocurrencies and conventional currencies can be exchanged from one currency to another currency - Currencies can be exchanged from one currency to another currency. For conventional currencies, this can be done in the foreign exchange market while for cryptocurrencies, this can be done in the crypto exchanges.
Differences Between Cryptocurrency and Conventional Currencies
Cryptocurrency transactions are transparent - This is what sets cryptocurrency apart from the conventional currencies. Since cryptocurrency runs on the blockchain and one of the features of blockchain technology is transparency, it means that all cryptocurrency transactions recorded and stored on the blockchain are transparent and anyone can view the transaction records. While in the conventional currencies, the records of money transactions is private and not transparent for everyone to have access to.
Stored cryptocurrency transactions records cannot be altered or erased - As always, one of the main strengths of a cryptocurrency is that it runs on the blockchain. This makes all transactions impossible to alter as any transactions recorded on the blockchain cannot be altered or erased. While in the conventional currencies, stored transaction records can be altered as the records are stored on physical paper, centralized server, storage device or computer which the information stored can be altered or erased.
Decentralization - This is another differentiating factor of cryptocurrencies compared to the conventional currencies. This basically means that there is no central entity or authority or bank that controls transaction activities. Since one of the characteristics of blockchain is decentralization, it means that there is no central authority or entity that makes decisions and the users makes all the decisions and have full control of what happens in the system. While in the conventional currencies, the banks or central financial institutions make all the decisions and have full control of what happens in the system.
Cost reduction - This is another aspect that differentiates cryptocurrencies to the conventional currencies like paper money. Sending cryptocurrencies from one person to another and from one country to another is very cost effective compared to the conventional currencies. Some cryptocurrencies charge very small transaction fees to send cryptocurrency transactions and some don’t even charge fees at all. This is great as it means that cryptocurrencies can be sent to any parts of the world at a much reduced cost. While in the conventional currencies, it can be very expensive to send currencies to any part of the world or from one country to another. Some financial institutions charge as high as 20% to send money from one country to another. Even though there are other alternatives like paypal, there are the fees attached are much higher compared to sending certain cryptocurrencies.
Speed - This is one of the main benefits of cryptocurrencies and one that really sets it apart from the conventional currencies. Anyone can send cryptocurrencies to any parts of the world faster in less time even as fast as few seconds. Depending on the blockchain which the cryptocurrency runs on, it can take a few second to send cryptocurrency transactions from one country to another and to any parts of the world as there are no third parties involved in the transaction process. While in the conventional currencies, the same cannot be said as it can take days, weeks or even months to send currencies from one country to another and to any part of the world due to the third parties involved in the transaction process and the due process the transactions has to follow when it comes to sending money from one country to another. This adds to the transaction time and makes the whole process very slow.
Uninterrupted payment - Cryptocurrencies live on the blockchain and as always, there is no downtimes on a stable blockchain. Since there is no central server, it is almost impossible for a blockchain to have a downtown since there are a lot of nodes in different parts of the world that runs the blockchain. This makes it possible for anyone to send cryptocurrency transactions from one person to another, anywhere in the world at any time without any interruptions. While in the conventional currencies, payments can be interrupted when sending money from one person bank account to another person bank account. This can be as a result of issues in the server or network problems or failures in the financial institution like the banks.
Downsides of Cryptocurrency Currently
Irreversibility of cryptocurrency transactions - The main downsides to cryptocurrencies is that transaction are final and cannot be reversed. This means that any cryptocurrency sent to the wrong address or to the wrong person due to mistake or due to phishing attack cannot be recovered or reversed back to the owner and is lost forever. That is why users have to be very careful when sending cryptocurrencies to any address or user.
Transactions cannot be easily traced to the real persons - This can be a major downside to cryptocurrency because a lot of fraudsters or bad actors can steal people’s money and the address where the stolen cryptocurrencies was sent to cannot be traced to the fraudsters or bad actors.
High price volatility - This is one of the big downsides of cryptocurrencies as it is highly volatile. Prices of cryptocurrencies is known to be volatile, this means that cryptocurrency prices can go up and down in a short period of time, which can lead to a huge drop in value. This can be a big problem when using certain cryptocurrencies as a fast and secure payment solution as the prices of the cryptocurrency can fall and the value dropped in relation to the dollar value when sending or receiving payments.
Loss of funds due to inability to recover lost keys or seed phrases - This is another major downside to cryptocurrencies as it is almost impossible to recover lost keys which in turn leads to loss of funds. Blockchains do not have the ability to recover lost keys such as private keys or seed phrases. This means that users have to be very careful and always keep their keys or seed phrased very safe. Once the keys or seed phrase is lost, the cryptocurrency funds are lost forever as there is no way to recover lost keys or seed phrases.
