Cryptocurrencies have already taken the world by storm, and investing in them has become a trend among investors. Investing in cryptos comes with significant advantages that give them the potential to become an alternative to traditional fiat currencies. 

However, cryptocurrencies have their share of downsides. In this article, you will find out about the advantages and disadvantages of cryptocurrencies. 

Top Advantages of Cryptocurrencies

Being blockchain-based, cryptocurrencies offer significant advantages over other financial instruments. Some of them are:

• High security

Blockchains generally work on a decentralised ledger system. In such a scenario, all the network participants have a copy of the network's ledger and can keep track of all the transactions taking place on the platform. 

Moreover, blockchains store all their information by distributing them across all their nodes. Thus, if a malicious user tries to overtake the network, that person or group has to simultaneously attack all the nodes on the network for the attack to be successful.  

Furthermore, blockchains have the feature of immutability. It means that once data is uploaded to the network, it is unchangeable. This will prevent hackers from manipulating data on the platform for malicious activities. 

In addition, all your data on a blockchain is stored in an encrypted manner. Therefore, only the owner of the data can decrypt the data using a public-private key pair and reveal his/her identity.

Additionally, blockchains store all their transaction history. This prevents malicious users from double spending, reversing transactions and spending coins that they don’t own.   

• Decentralisation

Blockchains are decentralised by nature. Hence, there is no single entity or group that controls the operations on the network. Instead, all the network participants participate in the activities and decisions regarding the platform. This feature of blockchains makes cryptocurrencies free from any kind of monopoly.

Furthermore, being decentralised, cryptocurrencies are not under the control of any governments, banks or any other financial institutions. 

• Transparent financial system

Due to the decentralised nature of blockchains, all network participants can view the transaction occurring on the network. 

Thus, by having a node on the network or using a blockchain explorer, you can view live transactions taking place on the platform. 

This open nature of the blockchain platform makes them corruption-free. Therefore, cryptocurrencies are a safer choice for users as compared to traditional currencies. 

• Negates Inflation

Cryptocurrencies have either an overall cap (like Bitcoin, which has a total supply of 21 million) or a yearly cap (like Dogecoin, which allows a maximum of 5 billion coins to enter its circulation each year). 

This feature helps cryptos control their overall supply and negate the effects of inflation.  

Advantages of A Cryptocurrency Over Traditional Currency

Cryptocurrencies have many advantages over traditional currencies. However, it has a major benefit when it comes to resisting counterfeiting. 

As cryptocurrencies are digital currencies present on the blockchain network, there is a record of each and every transaction on the network making its counterfeiting nearly impossible. 

Disadvantages of Cryptocurrencies

Cryptocurrencies have some significant disadvantages too. Some of them are:

• Risk of a 51% attack

On blockchains, there is always the risk of a 51% attack. It is a situation when a miner or a group of miners get control of more than 50% of the network’s mining hash rate. While in control, the malicious group can reverse completed transactions, prevent new transactions from gaining validation, halt ongoing transactions, double-spend coins and much more. 

However, this type of attack is only a risk on new blockchains and recently hard forked networks. 

• Energy-intensive

Most blockchains work on the Proof-of-Work (PoW) consensus mechanism. They require the network participants to use high-powered ASIC computers and find out the correct hash to add a block to the network. This consumes a lot of energy, and countries are taking steps to reduce its environmental impact. 

China is one of the countries which have banned Bitcoin mining to curb the environmental effect due to excessive power consumption. 

• No refund or cancellation policy

One major disadvantage of cryptocurrency is that there is no cancellation or refund policy. 
For example, in case you mistakenly send your funds to the wrong crypto wallet address, the blockchain does not have any refund or cancellation policy to get those funds back to your account.
Hence, it is crucial to verify and recheck the wallet address before you transfer your crypto assets. 
Furthermore, if by chance you lose the passkey for your crypto wallet, there is no way to access your funds. Thus, it is critical for you to back up the passkey and seed phrase of your crypto wallet in case of such mishaps. 

Disadvantages of Cryptocurrency in India

There are certain disadvantages of using crypto in India. They are:

• In this year’s budget, the Government had announced a tax of 30% on income generated from cryptocurrency transactions. Furthermore, there will also be a 1% TDS.
• Cryptocurrency is not a legal tender in India. Thus, people are still confused as to how crypto assets are taxable and still not legal. 

Disadvantages of Cryptocurrency Regulation

Cryptocurrencies have become a famous investment asset globally. However, there are some countries that are yet to develop clear-cut regulations for it. This creates confusion among investors as to whether or not to invest in cryptocurrencies. 

For example – The United States has a huge number of cryptocurrency investors and blockchain firms. However, they do not have a clear-cut regulatory framework for it. On one hand, the Securities and Exchange Commission (SEC) views crypto as a security, while the US Treasury views it as currency.    

There are many more examples from various other countries that show that governments have a long way to go when it comes to making cryptocurrencies a legal instrument for investment. 

What is The Biggest Advantage of Cryptocurrency?

The biggest advantage of cryptocurrencies is the ease of transactions. You can transact 24/7 all over the world. The only thing you need is a smartphone or a computer that can access your crypto wallet for making the transaction. 

Moreover, by using cryptocurrencies, international transactions have become cheaper. This is because blockchains are decentralised platforms that have no intermediaries or third parties to validate the transactions. Instead, it is done by the network participants and takes a matter of minutes. 

Thus, there are no hefty transaction costs for international transfers that you have to pay while doing transfers via a bank or a financial institution.

What is The Biggest Disadvantage of Cryptocurrency? 

The biggest disadvantage of cryptocurrencies is that they are highly vulnerable to scams. Malicious users often use fake mining apps, “rug pulls”, phishing, romance scams, extortion e-mails, etc., to trap unsuspecting users and gain access to their funds. 

Cryptocurrencies have the power to change the way we perceive money on a global scale. Although they have both advantages and disadvantages, you, as a crypto investor, need to be aware of them and take informed decisions. Only then will you be able to reap the benefits this blockchain marvel brings to the table.