Simply put, a cryptocurrency is a medium of exchange, such as the US dollar, but is digital and uses cryptographic techniques and it’s protocol to verify the transfer of funds and control the creation of monetary units.
Cryptocurrency is an exciting technology that offers users a secure way to transfer money without the need for intermediaries. This means that users can access financial services without financial institutions and at a fraction of the cost and time.
The name cryptocurrency is a portmanteau of cryptography and currency. This is due to the fact that crypto is made viable by its secure consensus mechanism called the blockchain, a sort of digital ledger that records transactions and is designed in such a way that it cannot be changed.
Recent years, an increasing number of companies worldwide are using bitcoin and other digital assets for a host of investment, operational, and transactional purposes. In fact, cryptocurrencies are no longer “niche” payment methods. Although there’s still speculation in the cryptocurrency space, more people are starting to recognize the significance of these digital assets. Rather than solely serving as alternative investments, cryptocurrencies have the potential to change society.
Cryptocurrency offers a unique opportunity in the history of finance and the benefits of crypto go far beyond its borderless and decentralized nature. Here are a few other potential positives:
Easy Transactions
Crypto transactions can be made easily, generally at a low cost, and in a relatively private manner. Using a smartphone app, hardware wallet, or exchange wallet, almost anyone can send and receive a variety of cryptocurrencies.
Relatively Secure
Because cryptocurrencies are rooted in cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. As such, the relative security of cryptos may be one of the biggest benefits for users.
Short Settlement Times and Low Fees
While some people may only want to invest in cryptocurrency to take advantage of (prospective) price appreciation, others might find benefit in the ability to use crypto as a medium of exchange.
The Possibility of Outsized Returns
Bitcoin has been one of the best-performing assets of the last 13 years. When it debuted in 2009, Bitcoin essentially had no value, but in the following years, it would rise to a fraction of a penny, and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.
Potential Inflation Hedge
Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, were traditionally thought to be good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money (increasing the supply), things that are more scarce tend to appreciate in value.
With more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up. Additionally, the Bitcoin protocol, for example, is also designed to keep those coins scarce regardless of what happens with monetary policy.
Transactional Freedom
One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction about as free as it can get. It’s similar to handing a dollar bill to a friend on the street.
Banks, or other payment processors, can choose to cut off services to anyone for any reason. This can make things difficult for some journalists, political dissidents, or other individuals working in nations with oppressive government regimes. Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them.
Adaptability
Some cryptocurrency projects take measures to become more efficient or resource-intensive. That’s a big difference between, say, the traditional banking system, which is often stuck utilizing outdated technologies and protocols.
Always-Open Markets
Stock markets, like the New York Stock Exchange (NYSE), are only open on weekdays during the regular business hours of 9:30 am to 4:30 pm Eastern Time. During nights, weekends, and on holidays, most traditional financial markets are not open for business.
Crypto markets, on the other hand, operate 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.