13 May 2022

What’s So Special About Cryptocurrency?

Want to know what cryptocurrency is, how it works, and why everyone's talking about it? Read on for answers to these questions and more.

What’s So Special About Cryptocurrency?


    What are Cryptocurrencies?
    Advantages of Cryptocurrencies
    Disadvantages of Cryptocurrencies
    Wrapping it All Up

What are Cryptocurrencies?

Cryptocurrencies are alternative currencies or digital monies that uses cryptography to secure financial transactions, control the creation of new units, and verify the transfer of existing units. Transactions are made without any third party like a bank, middleman, or government. Bitcoin is the first and most well-known cryptocurrency, created in 2009 by an anonymous person or group of people under the pseudonym, Satoshi Nakamoto.

While not all cryptocurrencies are decentralized, Bitcoin for example, is. Bitcoin is not subject to government or institutional control. Decentralization is one of the key features that sets Bitcoin apart from traditional fiat currency, which is issued and controlled by central banks.

Cryptocurrencies are powered by a technology called blockchain. Blockchain is a digital ledger that records cryptocurrency transactions in a secure and tamper-proof way. Each transaction is added as a “block” to the blockchain, creating an immutable record of all past transactions. Think of it like a giant, global spreadsheet that lives on computers all over the world. But this spreadsheet isn’t managed by any single person or organization — it’s decentralized, open for anyone to view, and can't be tampered with.

It's important to note — not all cryptocurrencies are money. In fact, some cryptocurrencies, like Ethereum, are platforms that can be used to build decentralized applications. These applications often have their own native cryptocurrency token that can be used to power transactions on the network. While other cryptocurrencies still may be used to transact value, most of them seek to offer something different, with the main goal being to provide alternative applications — not money.

Bitcoin is money first and foremost. And it's the best at doing just that.

Advantages of Cryptocurrencies

Because cryptocurrency transactions are recorded on the blockchain, they offer several key benefits over traditional fiat currency, including:

Enhanced security — cryptocurrency transactions are incredibly secure due to the use of public and private keys, as well as decentralized ledger technology.

Increased transparency — the blockchain allows anyone to view cryptocurrency transaction data at any time. This makes it difficult for bad actors to commit fraud or engage in other nefarious activities.

Faster transaction times – cryptocurrency transactions are typically confirmed and added to the blockchain much faster than traditional bank transfers.

Lower transaction fees – cryptocurrency transactions do not require third-party actors like banks or payment processors, which means that cryptocurrency users typically avoid paying high transaction fees.

Global access – cryptocurrency can be sent or received anywhere in the world, without the need for a bank account or other financial institution. Anyone with an Internet connection can use cryptocurrency within seconds. The benefits of a global, permissionless, and borderless financial tool can't be overstated —  cryptocurrency has the potential to bring financial access and inclusion to billions of people around the world who don't have access to traditional banking products.

Disadvantages of Cryptocurrencies

While cryptocurrency has many benefits, it also poses certain challenges for the user. Some of these disadvantages include:

Risk of price volatility – cryptocurrency markets are largely unregulated and susceptible to high levels of market volatility, which can lead to significant losses if the buyer is not careful.

Current lack of consumer protections – unlike traditional currencies that guarantee certain legal rights, cryptocurrency transactions are not protected by any government agency or consumer protection laws. Or at the very least, these protections are still in their infancy as regulators catch up to the cryptocurrency phenomenon.

Risk of fraud – cryptocurrency transactions are irreversible, meaning that once a transaction has been made, it cannot be refunded or reversed by the sender. This makes cryptocurrency susceptible to fraud and scams.

Despite these disadvantages, cryptocurrency has experienced rapid growth in recent years, with more and more consumers and businesses turning to cryptocurrency as a safe and convenient way to store and transact value.

Wrapping it All Up

The use of cryptocurrency is becoming increasingly popular, as people begin to see the many benefits of this new form of digital money. Some of the key advantages of cryptocurrency include increased security, reduced transaction costs, and increased privacy. Cryptocurrencies also have the potential to revolutionize the way we interact with the digital world, and could one day challenge the dominance of traditional fiat currencies.

While cryptocurrency is undoubtedly a powerful and promising innovation, there are still some challenges that need to be addressed before it can become truly mainstream. These include issues around scalability, volatility in value, and regulatory uncertainty.

But with continued development and adoption, cryptocurrency could one day become a staple in the global financial system. For now, its future remains an exciting and dynamic prospect. We're partial to the "revolutionary financial tool" angle, and that's why at NOAH, we're committed to putting Bitcoin into the hands of the next billion people — not because we believe it's merely an exciting prospect, but because we believe it's going to change the world.

Please be aware that: Cryptocurrencies are unregulated in the UK; Cryptocurrencies are not protected under Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS); Profits may be subject to capital gains tax; The value of investments can go down as well as up.

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