Proponents claim that cryptocurrencies are the future of international monetary systems. If you want it on it, you need to know about the nature of cryptocurrencies and all the advantages of using such a new monetary system.
A cryptocurrency is a digital currency which relies on encryption methods to regulate the creation of currency units and verification of fund transfers without the involvement of a centralized authority. This decentralization is a product of the generation of a blockchain which serves as a transaction database available to all users and functions as a distributed ledger. Bitcoin is the first cryptocurrency of such kind. Bitcoin was created in 2009 and has since been followed by other cryptocurrencies oftentimes called altcoins or alternative coins.
Advantages of Cryptocurrencies
Due to the nature of cryptocurrencies, multiple advantages have been identified in the use of this new system. Cryptocurrencies are decentralized, without inflation, borderless, safe, fast and cheap.
Cryptocurrencies are created as a peer-to-peer mode of payment. A network of anonymous and distributed users are all in-charge of the transaction process. As a result, there is no need for a centralized government and a banking system or corporate board to control the supply of currency. Everything related to the cryptocurrency is defined in the original algorithm and this algorithm cannot be changed.
Bitcoin and other cryptocurrencies are deflationary. This means that the number and availability of coins are predefined. For Bitcoin, the number of units that can be mined for circulation is set at 21 million. This means that after all Bitcoins are mined, no new units will be added resulting in an increase in value due to its scarcity. On the other hand, governments can print money arbitrarily which reduces the value of traditional money.
Traditional fiat money are issued and controlled by governments. Thus, use and exchange of such traditional currencies are determined by issuing governments. Users need to exchange currencies depending on where these will be used. There are also limits to the amount of physical currencies that can be carried by a person crossing borders. Cryptocurrencies eliminate these limitations since anyone can send and receive payments anywhere in the world so long as there is a computer and internet connection.
Cryptocurrencies involve complex, encrypted networks that make them difficult to breach. Cryptocurrency transactions are irreversible making them very secure. However, as some types of cryptocurrencies become highly popular and immensely valuable, attacks could increase. Like traditional fiat money, cryptocurrencies can also be stolen. However, there are ways to prevent theft such as using a cold storage wallet that is not connected to the internet.
Fast and Cheap
Depending on the technology in use, such as Bitcoin Lightning Network (BLN), transactions can be near-instant which is even better than the already fast transactions by seconds in other cryptocurrencies. Traditional fiat money transfers can take from hours to days. Technologies like BLN could also drastically reduce transaction fees from free (microtransactions) to cheap. In comparison, traditional money transfers require expensive fees.
In summary, cryptocurrencies have numerous advantages over traditional fiat money. However, these conditions could change depending on the technology and behavior of users of these currencies in the future.