Home Finance Cryptocurrencies vs. Traditional Currencies: Pros & Cons

Cryptocurrencies vs. Traditional Currencies: Pros & Cons

by Biljana Denic

Bitcoin is a cryptocurrency, the original one dating back to 2008 and sometimes referred to as the “King of Cryptocurrency”. What exactly is a cryptocurrency? Essentially, it is not even a currency. The way that it works is that a reward is given to people for solving complex encryptions which is the cryptocurrency which is called mining. That is then used for goods and services just like cash except that it is virtual and only exists on the blockchain. 

Since the inception of Bitcoin, the value has grown tremendously as people now use it as a regular currency. What are the pros and cons of using a cryptocurrency in place of traditional currencies such as US Dollars or the Euro? Here we will go into the pros and cons of using cryptocurrency against other currencies.

Regulation

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One of the defining features of cryptocurrency is that it isn’t regulated in the same way as national currencies. Traditional currency is regulated by and backed by the central bank of the issuing nation. 

These banks give security through the assets of that central bank. For the USA, the central bank is the Federal Reserve, and for the UK, it is the Bank of England. These financial institutions keep a balance sheet for the whole nation by gauging their assets against their liabilities. In theory, in the event of a financial crash, those assets allow the government to borrow funds to keep the economy going and stabilize the currency. 

These measures ensure that wild fluctuations in value do not occur. The opposite is true for cryptocurrencies, it is unregulated, and valuation is left to market forces making it more of a pure example of a free-market economy. Whether this is a good or bad thing depends on your circumstances, it allows investors to profit (or lose) on their investments, but cryptocurrency is not a good choice for savings.

Availability & Acceptance

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Traditional currency is everywhere. We usually are paid our wages in it, the bank takes it, and so do all shops and service providers. Cryptocurrencies are newer and are not accepted in every shop. But the list of those who are accepting them is growing, and buying bitcoin from paxful.com is quick and easy online. Another advantage of using a cryptocurrency is the cost of sending money from one place to another, the cost of processing is minuscule in comparison to international bank transfers. 

Many economies are going more cashless as time goes by. People are very used to using apps on their phones to pay for things, for instance. So, since fiat currency or cash has evolved, it was only a matter of time before there was an actual virtual currency that could compete and possibly take its place one day. 

Paying with Bitcoin is essentially the same process as paying with a smartphone app that acts like a prepaid debit card. Only it costs no money to keep it in your wallet unlike a prepaid card that charges monthly fees. You only pay a transaction fee when you buy, sell or make a purchase. After that, your cryptocurrency can sit in your digital wallet for years and not incur any charges.

There is also the secrecy aspect of a transfer. Traditional banks are duty-bound to disclose transactions to investigating authorities such as the tax office. With a cryptocurrency, secrecy is ensured, if you are looking to be discreet about any transaction, then the privacy you get from these methods is unrivaled. Moreover, you can grow your crypto assets significantly with the higher interest rates that it offers as compared to traditional savings accounts. For instance, Hodlnaut offers up to 10.5% APY on cryptocurrencies. Thus, investing in crypto is a good option.”

Lastly, it is a global currency. You can access it from anywhere in the world and you don’t have to pay any conversion rates or fees like you would if you were to try to use a foreign currency in your country. This is great for travelers that spend little time in a country so they don’t have to worry about what to do with the currency that they didn’t use. 

Inflation

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There are some countries, like Germany for instance, that have a real aversion toward inflation. It is likely because of their history with periods of massive instability due to inflation that got out of control. However, there are other countries like the US that have little issue with some inflation once in a while. 

Inflation of a currency usually happens when a country uses its central banking system to print more money. The more cash that gets injected into an economy, the more the value gets diluted. This means that it costs more to buy things since wages generally don’t keep pace with inflation. If you make $10 today that ends up being worth $8 tomorrow then everything you pay for actually costs more. 

This can’t happen with a cryptocurrency since there is a finite amount of it. And not only that, but we know how much is actually left as opposed to a commodity like gold which lies underground waiting to be found. 

Some people that live in countries that allow inflation to occur don’t like the fact that their cash can be devalued like that. With that in mind, they are turning more and more towards investing in cryptocurrency as a way to protect their assets from inflation. 

The Choice to use or Not

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The choice to use Cryptocurrencies is a personal one at the end of the day. Often, we find those who are more comfortable with pioneering technologies tend to be those in the younger demographic.

Both have their uses, and some of the decision is down to the level of risk vs. reward. Traditional currencies are safer with less fluctuation, but cryptocurrency can move up and down quickly, allowing for massive returns on investments if you play it right.

Cryptocurrencies also give us a higher deal of control and privacy in our financial dealings. The days of only having the option to use the denomination that the government demands are long gone, and we now have the freedom of choice if we so desire it.

This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice.

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