What are the Benefits and Potential Drawbacks of Cryptocurrencies?

Although cryptocurrencies have gained a massive amount of publicity in recent times, it is important to remember they have only existed since 2009. When compared to more traditional methods such as credit cards and bank transfers, cryptocurrencies are the “new kids on the block”. Still, it is impossible to deny the impacts that these assets have already had upon the marketplace.

Not only can currencies such Dogecoin and Bitcoin be used to enact a host of online transactions, but they are even being recognised by the younger generation. So, what might the future have in store?

In order to adequately answer this question, it is crucial to examine some of the benefits that cryptocurrencies have to offer as well as some possible pitfalls that may need to be overcome. Let's look at both sides of the “coin”.

Anonymous, Secure and an Excellent Investment Opportunity


Perhaps the most well-known quality of cryptocurrencies such as Ethereum and Bitcoin involves their decidedly anonymous nature. As all transactions take place within the blockchain environment, the identity of the sender and recipient are never known to one another. This is certainly not true when other methods such credit cards and the majority of e-wallets.

Anyone who is concerned about identity theft should therefore be interested in the potential of cryptocurrencies as an alternative form of payment. In terms of security, cryptocurrencies are likewise attractive opportunities for businesses that wish to offer their clients an additional transfer option.

Let us also discuss the investment side of cryptocurrencies. Anyone who has followed the price of benchmark assets such as Bitcoin is well aware that the value of these currencies can change dramatically within a short period of time. Indeed, the price of Bitcoin has risen exponentially since its inception. Those who were keen enough to invest at an extremely early stage could therefore have enjoyed substantial profit margins.

Such investment possibilities have begun to take the online financial community by storm. Those interested in short-term profits that are liquid in nature are interested in what cryptocurrencies have to offer. Some analysts even believe that such methods may soon overtake other asset classes such as the Forex marketplace. However, this is more speculation than reality.

A Host of Unknowns

We can now see why countless businesses and individuals are keen to leverage the flexible nature of cryptocurrencies. However, it pays to be objective in these modern times and there are some concerns which should be brought to light. Ironically, one of the main benefits of cryptocurrencies could also represent a potential drawback. As the value of these currencies can become quite volatile on occasion, some conservative investors are wary about becoming involved.

Also, cryptocurrencies are not governed by any type of central bank. This results in only minimal levels of oversight and in severe cases, price manipulations. Some feel that this lack of transparency may place novice traders at risk; particularly those who cannot afford to lose a substantial amount of money. The recent price changes associated with Bitcoin are a perfect example of why future regulations may very well be in order.

There is also the concern that some individuals (and even countries) may reallocate their funds into cryptocurrencies in order to avoid tax obligations. The main problem here is that the laws as still somewhat murky in regards to the legality of such options. Might cryptocurrencies represent the next electronic offshore marketplace? Only time will tell.

Finally, there is no guarantee that cryptocurrencies will exist in a handful of years. While unlikely, there is always a chance that governmental restrictions or even legislation enacted by the international community could cause many traders to look elsewhere for an investment opportunity. In terms of the average consumer, the somewhat complicated nature of cryptocurrencies could equate to a stumbling block.

A Bright Digital Future or Smoke and Mirrors?

Bright Digital Future

We can now see that cryptocurrencies offer a unique of bespoke advantages in relation to other forms of payments and investment opportunities. Still, the drawbacks should not be taken for granted. The good news is that most analysts feel positive about the future of these digital transactions. Does this mean that cryptocurrencies are here to stay? Not necessarily.

The chances are high that regulations will need to be enacted if the current cryptocurrency market continues to grow at its present pace. What could these regulations include? Might some form of central bank need to be created? How could such moves impact the value of the average cryptocurrency? These are some of the unknowns which industry professionals continue to analyse.

Still, a growing number of businesses are now choosing to include cryptocurrencies as an additional payment option. Assuming that more consumers become aware of the possibilities, these digital transactions could be set to shake up the entire Fintech community as we know it.

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