Advantages of Using Cryptocurrency

The popularity of cryptocurrency has exploded over the past few years. Statistics clearly suggest that cryptocurrencies are one of the most widely traded financial assets today. This is obviously because of the fact that there are some advantages to using cryptocurrency. In this article, we will have a closer look at those advantages and try to understand the reasons behind the burgeoning growth in the valuation of cryptocurrencies.

Advantages of Using Cryptocurrencies

There are several advantages of using cryptocurrencies. The advantages depend upon the type of entity using the currency. For instance, individuals derive different advantages as compared to companies. The details of the most common advantages are mentioned below:

  • Fewer Chances of Inflation: The primary reason behind the creation of cryptocurrencies was to end the government monopoly over the issuance of money. This is because governments have been known to excessively print money in order to meet their political objectives. This causes a loss of value to the bearer of those currencies. Since cryptocurrencies limit the amount of currency that can be mined, there is less chance of inflation. The idea is to create a currency that is beyond the control of the government so that it can be an efficient store of value.

  • Cutting Out the Middlemen: Cryptocurrency technology is based on blockchain. Blockchain by definition is a peer-to-peer technology. This means that transactions happen directly between the sender and the receiver. There are no middlemen such as banks or brokers involved in the transmission of funds. The absence of middlemen means that the transaction costs are also much lower as compared to other mediums. Also, the absence of middlemen means that audit trails have become simpler. The system has inbuilt capabilities for better recordkeeping eliminating the need for a middleman to keep these records. By using cryptocurrencies, companies are not only able to reduce the transaction fees but are also able to cut down on the level of paperwork and complication generated by middlemen.

  • Greater Privacy: In the case of normal bank transfers, banks have access to all the information in your account. Also, they might run checks when you make an online transaction to validate whether or not you have the funds required to go through with the transfer. There is a loss of privacy while dealing with banks as they have control over data. This data is commonly accessed by banks and shared within internal departments in order to sell other banking services to customers.

    However, this is not the case with cryptocurrencies. Every transaction that takes place on a cryptocurrency network is considered to be unique. Hence, to verify the validity of the transaction, cryptocurrency networks can only validate the data which has been released to them by the user. As a result, users have greater privacy over their funds. This is because the entire transaction takes place over a decentralized platform. As a result, the middlemen who keep records are changing constantly. Hence, there is no way for them to access other details in an account.

  • Financial Inclusion: The traditional banking system requires an elaborate setup in order to penetrate an area. For instance, there have to be physical branches, automated teller machines, and other such infrastructure in place before the banking sector can penetrate a geographical area. However, this is not the case with cryptocurrencies. Cryptocurrencies require nothing more than a base-level internet connection in order to assist users in making transfers of money. As a result, cryptocurrency has a huge potential to increase the level of financial inclusion in various parts of the world. There are many places in the world where there are no banks but they do have an internet connection. These are the geographical regions in which cryptocurrency networks can make a real difference. They can provide access to savings, credit, and other such banking products to the underbanked. This area of cryptocurrency has not been explored till now. However, recently many fintech companies have started experimenting with the idea. They have even successfully tested the concept. Hence, it can be said that cryptocurrency might be deployed on a large scale in developing countries. The fact that the governments of developing countries are not passing legislation to ban the growth of cryptocurrencies is also helping in this regard.

  • International Transactions: Cryptocurrency is particularly useful when it comes to international transactions. This is because of multiple reasons. Firstly, cryptocurrencies are not impacted by exchange rate movements since they are not fiat currencies. Hence, they provide a stable medium for parties in different parts of the world to interact with each other without the constant fear of loss of value. This also means that traders do not have to hedge using derivative contracts in order to protect against the possible loss of value further reducing transaction costs. The second reason is that the transaction costs are very high in international transactions whereas they are very low in the case of cryptocurrencies. Thirdly, if cheaper modes of sending money to international locations are used, they tend to take up a lot of time. Cryptocurrency is not only cheaper but also instantaneous.

  • Confidentiality: The traditional banking system is highly regulated. This means that banks have to take a lot of information from their customers in order to meet the KYC norms. As a result, they are not able to provide a lot of confidentiality to their clients. However, when it comes to cryptocurrency networks, there is no such compulsion. This is because the networks are not regulated. Hence transactions can happen between digital wallets instead of actual people. It is possible to send money to someone or receive money from someone without knowing their identity.

The fact of the matter is that cryptocurrencies are indeed revolutionary. There are several advantages of using this technology which is why its usage has grown manifold despite there being several ups and downs on the way.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.