Advantages and Disadvantages of Cryptocurrency in 2024

A cryptocurrency is a virtual or digital currency. Cryptographic systems secure it, and it can be used to make safe online transactions without mediators. 

“Crypto” refers to cryptographic techniques and several encryption algorithms that help secure these records, such as hashing functions, elliptical curve encryption, and public-private key pairs. Investors must know that cryptocurrencies are private digital currencies that the government of India has not approved. 

The Indian government is piloting its own digital currency and does not endorse the existing cryptocurrencies.

What is Cryptocurrency?

Cryptocurrencies are not regulated by any central government authorities, making them immune to government interventions. Many cryptocurrencies are decentralized networks based on blockchain technology.

A cryptocurrency is a digital currency based on a network that is scattered across a huge number of computers. The decentralized system of cryptocurrency makes it faster and cheaper to transfer money.  It does not crumble at a single point of failure. The price volatility, alleged use in criminal activities that may not be easy to map, and high energy consumption for mining the coins are considered some of the key challenges to accepting cryptocurrencies, aside from the fact that these coins do not have any sovereign guarantee or approval.

Cryptocurrencies act as a medium for value storage or exchange. All this depends on a public ledger technology called “blockchain.” It records the data and keeps track of the transactions sent via the network. Blockchain is a virtual chain of blocks, each of which contains a set of transactions and other information. The block becomes immutable, i.e., the data stored inside the block cannot be removed or replaced once it is added to the chain. 

Nodes are a network of contributors by which cryptocurrencies are managed. The nodes perform diverse roles on the network, from storing to validating transactional data. They manage the database and validate the new transaction entries. The best part is that there is no single point of failure, which means if one node breaks down, it will have no impact on the blockchain ledger. 

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What Are The Advantages of Cryptocurrency?

Cryptocurrency has gained popularity among investors globally. With technological involvement and industrialization, digital currencies, such as Bitcoin, are gaining a satisfactory position over others. Cryptocurrency makes it easy to transfer money without any involvement of banks and other financial institutions. 

Let us see a few more advantages of it:

Inflation Protection

Due to inflation, the value of many currencies has declined. Many folks see cryptocurrency as offering protection against inflation. Bitcoin has a hard cap on the whole number of coins that will ever be minted. For example, as the growth of the money supply overtakes the growth in the supply of Bitcoin, the price shall increase. Many other cryptocurrencies use the exact mechanism to cap supply and can act as a safeguard against inflation. In terms of quantity, only 21 million Bitcoins have been released, as specified by the ASCII computer file. All the BTCs will be mined by the year 2140. Therefore, the value will rise because of increased demand, which might keep up with the market and prevent inflation in the long run.  

Transactional Speed

If you wish to transfer money to your loved ones, for example, in the United States, there are a few ways to move assets or funds from one account to another very quickly. Cryptocurrency transactions are done in a matter of minutes, and that is appealing to many. Within U.S. financial institutions, most transactions are settled in three to five days, and wire transfers take at least 24 hours.

Cost Effective Transactions

Cryptocurrencies can help transfer funds globally. The transactional cost with the help of cryptocurrency can be minimal or zero. It is negligible as it eliminates the need for third parties like VISA to confirm transactions. 

Decentralization

Cryptocurrencies represent a brand-new decentralization model for money. They also help combat a currency’s monopoly and free cash from control. No government organizations can set the coin’s worthiness or flow, which crypto enthusiasts think makes cryptocurrencies secure and safe. 

Diversity

Investments in cryptocurrency can generate profits. The market has extended immensely over the past decade. There is a limited history of the price activity of the cryptocurrency markets; so far, they appear unrelated to other markets like stocks or bonds. That makes cryptocurrencies an acceptable source of portfolio diversification.

Combining assets with less price correlation can give you more stable returns. For example, if your stock collection decreases, your crypto asset might rise and vice versa. However, cryptocurrency is usually very volatile and, in the end, might increase your portfolio’s volatility if your asset allocation is heavy on cryptocurrency. 

Accessibility

Investors need a computer or a smartphone with an internet connection to use cryptocurrency. There’s no identification verification, credit check, or background to open a cryptocurrency wallet. It is way faster and easier compared to old financial institutions. It also allows individuals to make internet transactions or send funds to someone effortlessly.

Safe And Secure

No one can access your funds unless they gain access to your crypto wallet’s private key. If you forget or lose your key, you cannot recover your funds. Further, the transactions are secured by the blockchain system along with the scattered network of computers that verify them. It’s more secure if investors keep crypto assets in their own wallets. The transactions are secured by the usage of public and private keys, proof of work or proof of stake, and other various forms of incentive systems. 

Transparent

Due to blockchains’ decentralized nature, one can view money transfer transactions by simply using the platform’s blockchain explorer to track live transfers. This open and transparent system is a relief among investors and is corruption-free.

Private

There is no third-party intervention due to which your account has a level of privacy. On the blockchain, investors have an identifier and your wallet address as the transactions are pseudonymous and nothing personal about you. Even many coins focus on privacy to enhance the cryptocurrency nature of privacy. 

Currency Exchanges Are Done Effortlessly

Investors can purchase cryptocurrency using currencies like the U.S. dollar, Indian rupee, or European euro. Various cryptocurrency exchanges and wallets help investors trade crypto and convert currencies with minimum transaction charges across different wallets.

What Are The Disadvantages of Cryptocurrency?

Investing in cryptocurrency might look appealing and profitable, but investors should also consider its downsides. 

• Cryptocurrency claims to be anonymous transactions, but they are pseudonymous, meaning they leave a digital trail that the Federal Bureau of Investigation can decode. So, there’s a possibility of interference from federal or government authorities to track the financial transactions of normal people.  
• On a blockchain, there is a constant risk of a 51% attack, which occurs when a miner or group of miners gets more than 50% of the network’s mining hash rate control. While in control, an ill-natured group can reverse the completed transaction, pause the process, double-spend coins, prevent new transactions from getting validation, and much more. Nevertheless, this attack is only a risk to recently hard-forked networks and new blockchains.
• The majority of blockchains work on the proof-of-work consensus mechanism. Network participants are required to use powerful ASIC computers and the right hash to add a block to the network. Due to this, there is excessive power consumption, and countries are taking major measures to lower their impact on the environment. 
• The lack of key transaction policies is a major drawback of cryptocurrencies. The no refund or cancellation policy can be considered the default stance for transactions wrongly made across crypto wallets, and each crypto stock exchange or app has its own rules.

Are Cryptocurrencies Legal In India?

Cryptocurrencies as a payment medium are not regulated or issued by any central authority in India. There are no guidelines laid down for sorting disagreements while dealing with cryptocurrency. So, if you wish to trade crypto, do it at your own risk. 

Nirmala Sitharaman, the Finance Minister of India, initiated a tax on digital assets that has increased the discussion on the legality of cryptocurrency in the country. 

Given the stance of the Reserve Bank of India (RBI) Governor and other key ministers from time to time, it can be safe to state that cryptocurrency is not banned in India. Until 2022, cryptocurrency was unregulated in the country. This changed after the government set forth a 30% and 1% tax on profits from cryptocurrencies and tax deducted at source, respectively, in the Union Budget of 2022. This event marked the Indian government’s official cryptocurrency regulation. 

While many supported the decision as it marks the very start of getting cryptocurrency recognition, the Government of India still has to issue an official note for cryptocurrencies to be considered legal in India. 

Tax on Cryptocurrency in India

Cryptocurrency tax is one of the most confusing aspects of investment in India. Initially, there was no income or goods and services tax (GST) on cryptocurrencies in India. Still, since the Union Budget 2022, a tax regime for digital or virtual assets that include cryptocurrency has been introduced. 

• Crypto investors must keep a well-calculated record of losses and gains as a part of their income.
• A 30% tax will be charged on earnings from the transfer of virtual or digital assets. This tax includes cryptocurrencies, NFTs, etc.
• The cost of acquisition, along with no deduction, will be permitted when reporting gains from the transfer of virtual or digital assets.
• A tax of 1% is deducted at source (TDS) on the buyer’s payment if it crosses the threshold limit.
• If someone receives cryptocurrency as a gift or transfers it, the beneficiary is subject to tax. 
• If investors face any loss from the virtual or digital asset investment, it cannot be recovered against other income. 

Bottom Line

Cryptocurrencies can be bought via crypto exchanges in India. However, not all electronic commerce websites allow the trading of cryptocurrencies. Believe it or not, popular cryptos like Bitcoin and Ethereum are barely used for retail transactions in India. They are used primarily for cross-border transfers outside of India. 

Crypto investors should know and understand the risks involved before investing in cryptocurrencies. Considering all the advantages mentioned earlier, it is hard to debate whether investing in crypto has any value. The benefits are of great value for investors who treasure safe and fast transactions.

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