CryptoCurrency

Cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

Individual coin ownership records are stored in a digital ledger, which is a computerized database using strong cryptography to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership. Despite their name, cryptocurrencies are not considered to be currencies in the traditional sense and while varying treatments have been applied to them, including classification as commodities, securities, as well as currencies, cryptocurrencies are generally viewed as a distinct asset class in practice. Some crypto schemes use validators to maintain the cryptocurrency. In a proof-of-stake model, owners put up their tokens as collateral. In return, they get authority over the token in proportion to the amount they stake. Generally, these token stakers get additional ownership in the token over time via network fees, newly minted tokens or other such reward mechanisms.

Features:

Transactions in cryptocurrencies are irreversible: One of their disadvantages is the irreversibility of transactions. When you use cryptocurrency like bitcoin, you need to confirm before the trade ever occurs. Once you give the confirmation, the transaction will be initiated. And no one in the world would be able to stop that transaction, not even Satoshi Nakamoto himself (or themselves). So, to deal with the transactions in cryptocurrencies, you need to be much more responsible before you confirm a transaction.

Cryptocurrencies are very secure: They are secured by cryptography codes and are locked by using a public cryptographic system. Every owner has a private key. So, no one can access that private key other than the owner. The cryptography used to create this private key is so strong that the numbers are so huge that it is almost impossible to break. Therefore, one can use cryptocurrencies without fear of security.

There is no need for permission: You do not need to take a permit from anybody while using it. That means there would be no gatekeepers who will stop you from using the currency. All you need to do is to install free software and use it. This specific feature gives users a lot of freedom, and they can use cryptocurrencies as they wish.

One can hide real-world identities: Many people are scared to death when they need to share their real identities online. However, in the case of cryptocurrencies, you do not need to provide your real-world identities. All you need to have is an address that has around 30 characters. And you would be able to access their benefits easily.

Super-fast: Another great feature is that they are super-fast. If you initiate a transaction, it is immediately caught up in the network and confirmed within two minutes.

These currencies do not care about the specific location: Cryptocurrencies do not care about the owner’s physical location. So you can send cryptocurrency to your relative down the street or send the same to a friend living in another part of the world. And the transactions would take the same time and would be treated similarly.

Disadvantages:

Volatile: Cryptocurrencies have still come a long way as compared to the past. However, they are still a very nascent technology. This means that the markets are still extremely volatile. It is common for cryptocurrencies to double in value in a matter of months. It is also common for cryptocurrencies to halve in value within the same period of time. Hence, for the moment cryptocurrencies are used by investors who are not afraid of speculation or volatility. Investors who are looking for a stable source of value for their investments continue to steer clear of the cryptocurrency markets.

Unregulated Markets: Firstly, the biggest advantage of cryptocurrencies is that they can function without the existence of a central bank that coordinates their activities. However, this is also the biggest disadvantage of these investments. Firstly, since there is no central bank or exchange which mediates all transactions, most of them are irreversible. Secondly, since there is no centralized party or government which enforces its value. The value of the coin is purely determined by the value which peers investors place on it. Hence, if the investing community were to lose interest in a particular cryptocurrency because of a security incident, the units of that currency could become worthless overnight.

Data Loss: The money invested in cryptocurrencies is held in digital wallets which are protected by digital passwords. If the owner deletes these passwords and is not able to recover them on his own, there is a big possibility that the money locked in the digital wallet may become inaccessible to them.

Legal Hassles: The problem with cryptocurrencies is that they are completely anonymous. As a result, they are widely used by crime syndicates and other people indulging in unlawful activities. Since cryptocurrencies are not regulated by the government, criminals find this to be the best way to launder their money. As an investor, this can be problematic. Since the market is completely anonymous, it is possible that investors could be aiding and abetting such money laundering activities without having any knowledge of the same. It is possible that investors might end up in a legal quagmire simply because they traded cryptocurrencies. In order to avoid such problems, many investors avoid investing in cryptocurrencies altogether. Apart from the issues mentioned above, many countries have made issuing and accepting cryptocurrencies an illegal activity. If investors trade these currencies despite the ban, then too, they are involved in illegal activities and could face legal repercussions.

Tax Hassles: Since cryptocurrencies are relatively new, there is still a lack of clarity about how the gains from these investments need to be taxed. Since the rules are not completely clear. Most countries in the world do not have tax gains from cryptocurrencies mentioned in their tax code. Even though this mention has not been explicitly done, investors are supposed to mention the income and pay taxes on them.

Since governments do not have a strong mechanism to determine the exact income from cryptocurrencies, some investors have tried to avoid paying taxes on them. This has landed them in trouble with the tax authorities. In many cases, investors genuinely wanted to pay their dues. However, due to the confusion about the exact nature of tax that needs to be applied to cryptocurrencies, they have been unable to do so. Hence, paying taxes on cryptocurrencies is also a complex task that requires significant transaction costs.

Data Theft: The overall system which manages the entire cryptocurrencies network is quite safe. Hackers cannot really enter these blockchain networks or take control of them. On the other hand, hackers can and do hack into individual accounts. A lot of the time, they use techniques such as phishing and social engineering. This means that instead of hacking into the system, they actually trick the investor and obtain the password voluntarily.