Cryptocurrency has become extremely popular over the past few years, but many consumers and investors may be wondering what all the commotion is about. Why would anyone choose cryptocurrency when their local currency works just fine for most things? Why would someone invest in a cryptocurrency?
In fact, there are a lot of advantages to using and investing in cryptocurrency. Here are the top eight benefits to consider.
8 benefits of cryptocurrency
- Transaction speed
- Transaction costs
- Inflation protection
1. Transaction speed
If you want to send someone money in the United States, there are few ways to move money or assets from one account to another faster than you can with cryptocurrency. Most transactions at U.S. financial institutions settle in three to five days. A wire transfer usually takes at least 24 hours. Stock trades settle in three days.
But one of the advantages of cryptocurrency transactions is that they can be completed in a matter of minutes. Once the block with your transaction in it is confirmed by the network, it's fully settled and the funds are available to use.
2. Transaction costs
The cost of transacting in cryptocurrency is relatively low compared to other financial services. For example, it's not uncommon for a domestic wire transfer to cost $25 or $30. Sending money internationally can be even more expensive.
Cryptocurrency transactions are usually less expensive. However, you should note that demand on the blockchain can increase transaction costs. Even so, median transaction fees remain lower than wire transfer fees even on the most congested blockchains.
Anyone can use cryptocurrency. All you need is a computer or smartphone and an internet connection. The process of setting up a cryptocurrency wallet is extremely fast compared to opening an account at a traditional financial institution. There's no ID verification. There's no background or credit check.
Cryptocurrency offers a way for the unbanked to access financial services without having to go through a centralized authority. There are many reasons a person may be unable or unwilling to get a traditional bank account. Using cryptocurrency can allow people who don't use traditional banking services to easily make online transactions or send money to loved ones.
Unless someone gains access to the private key for your crypto wallet, they cannot sign transactions or access your funds. However, if you lose your private key, there's also no way to recover your funds.
Furthermore, transactions are secured by the nature of the blockchain system and the distributed network of computers verifying transactions. As more computing power is added to the network, it becomes even more secure.
Any attack on the network and attempt to modify the blockchain would require enough computing power to confirm multiple blocks before the rest of the network can verify the ledger's accuracy. For popular blockchains such as Bitcoin (BTC 4.28%) or Ethereum (ETH 1.75%), that kind of attack is prohibitively expensive.
Instances of hacked cryptocurrency accounts are usually tied to poor security at a centralized exchange. If you keep your crypto assets in your own wallet, it's far more secure.
Since you don't have to register for an account at a financial institution to transact with cryptocurrency, you can maintain a level of privacy. Transactions are pseudonymous, which means you have an identifier on the blockchain -- your wallet address -- but it doesn't include any specific information about you.
This level of privacy can be desirable in many cases (both innocent and illicit). That said, if someone connects a wallet address with an identity, all of the transaction data is public. There are several ways to further mask transactions, as well as several coins that are privacy-focused to enhance the private nature of cryptocurrency.
All cryptocurrency transactions take place on the publicly distributed blockchain ledger. There are tools that allow anyone to look up transaction data, including where, when, and how much of a cryptocurrency someone sent from a wallet address. Anyone can also see how much crypto is stored in a wallet.
This level of transparency can reduce fraudulent transactions. Someone can prove they sent money and that it was received or they can prove they have the funds available for a transaction.
Cryptocurrency can offer investors diversification from traditional financial assets such as stocks and bonds. While there's limited history on the price action of the crypto markets relative to stocks or bonds, so far the prices appear uncorrelated with other markets. That can make them a good source of portfolio diversification.
By combining assets with minimal price correlation, you can generate more steady returns. If your stock portfolio goes down, your crypto asset may go up and vice versa. Still, crypto is generally very volatile and could end up increasing the volatility of your overall portfolio if your asset allocation is too heavy on crypto.
8. Inflation protection
Many see Bitcoin and other cryptocurrencies as offering protection against inflation. Bitcoin has a hard cap on the total number of coins that will ever be minted. So, as the growth of the money supply outpaces the growth in the Bitcoin supply, the price of Bitcoin ought to increase. There are numerous other cryptocurrencies that use mechanisms to cap supply and can act as a hedge against inflation.
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The value of cryptocurrency
With all the benefits cryptocurrency has over fiat currency and other asset classes, it's hard to argue there's no value in using or investing in crypto. The utility provided by many cryptocurrencies is of great value to many people who value fast and secure transactions. And, it's only going to grow more accessible over time with fewer technical hurdles. Combined with the benefits of diversification and the potential to hedge against inflation, the benefits of adding crypto or crypto stocks to your portfolio start to add up.