Cryptocurrencies make it possible to transfer value online without a middleman, like a bank, almost instantly and 24/7, for low fees. Popular cryptocurrencies include Bitcoin, Ethereum and Bitcoin Cash.
They aren’t tied to any financial institution or government, so they can move anywhere and remain accessible, no matter what happens to the global finance system. There are thousands of different cryptocurrencies. Check out Cryptsy for more information.
1. Decentralization
A core principle of cryptocurrency is decentralization. It transfers decision-making and resource allocation responsibilities from centralized entities to a network of participants.
This approach reduces the risk of a single point-of-failure that could impact all users. In addition, it allows for a higher degree of transparency and security.
From a policy perspective, it can improve planning and service delivery to better meet local needs and aspirations. In Ethiopia, decentralization also helps address a legacy of ethnic and regional tensions (Faguet, 2012).
Technologically, it enables peer-to-peer financial transactions without intermediaries. It can provide banking services for billions of “unbanked” people around the world. And it can enable new applications like e-commerce and payments. The possibilities are endless. However, there are also challenges. One is dispute resolution.
2. Transparency
In just over a decade, cryptocurrencies have gone from digital novelties to trillion-dollar technologies that threaten global economic systems. The underlying technology enables people to transfer money rapidly and relatively anonymously, across borders, without the need for a bank to approve the transaction or charge fees. This allows dissidents in authoritarian countries to raise funds and circumvent government controls, and it is a key factor behind the popularity of Bitcoin and other cryptocurrencies.
But volatility in the cryptocurrency market and a lack of regulatory oversight have sparked concerns about fraud, tax evasion, cybersecurity, and financial stability. As crypto assets become more mainstream, investors will rightly expect them to meet the same standards of transparency and accountability that they demand of established assets. The industry is already working toward this goal.
3. Irreversibility
Irreversibility is one of the most controversial aspects of cryptocurrency. While it reduces fraud and eliminates the need for trusted third parties (such as credit card companies), it also prevents the victim from getting their money back in cases of robbery, theft or ransom.
The reason behind irreversibility is that once a transaction is committed to the blockchain, it cannot be undone. This is an important feature for crypto, but it could also be a hindrance to its adoption. After all, it is not uncommon for a simple mistake like typing in extra zeros to make people lose their money.
Adding the possibility of reversing transactions would allow for greater consumer protection and could help push crypto closer to global adoption. However, doing so will have to be done in a way that doesn’t compromise the blockchains’ security properties.
4. Security
Cryptocurrency is becoming increasingly popular among businesses for a number of reasons. Its relative recent price stability, security measures and wide international adoption have begun to outweigh cons that have previously prevented some from accepting it.
However, the cryptocurrency ecosystem is not without its risks. A multitude of threats exist, ranging from cyber attacks to phishing and ransomware, which can lead to financial losses and erosion of trust in the digital asset.
To mitigate these risks, investors should follow best practices for safeguarding their cryptocurrency assets. Thorough due diligence, secure storage in hardware wallets and password-protected accounts with multi-factor authentication are essential. Rigorous cybersecurity regulations and anti-money laundering (AML) compliance can also help to protect against hacks and data breaches. This could promote a robust and resilient cryptocurrency ecosystem.
5. Accessibility
Cryptocurrencies aren’t tied to any central authority and are portable, meaning they can be transferred between addresses instantly with no fees. They can be stored in a digital wallet that you control, or you can use an online cryptocurrency exchange to buy and sell them at the current market price.
These attributes make it possible to bypass banks and financial institutions. But despite this, crypto isn’t widely used as a medium of exchange. It’s mostly bought by investors hoping that it will appreciate in value.
Interestingly, many people – including bankers, software developers and even governments – still have a very limited understanding of what cryptocurrencies are. This has to change to speed up crypto adoption. To do that we need to understand better what it’s about and how it can be made more accessible.