Why would you use cryptocurrency instead of the ordinary banking system?

If you’ve been taking an interest in our recent articles about cryptocurrencies then you’re in the right place. One of our previous articles ‘What is Bitcoin and what is cryptocurrency?‘ should have given you a base level of cryptocurrency knowledge. Nevertheless, you’ve probably been wondering what the fuss is all about.

What’s all this fuss about cryptocurrencies?

Upon first glance, Bitcoin appears like any other currency. The only difference being that it isn’t controlled by any one entity such as a bank. Bitcoin mining involves many individuals verifying transactions instead of a single bank. The obvious result being that there’s less chance of mistakes (either deliberate or not) being made. However, as you read this and other articles on the topic of cryptocurrency, you will know that there is more to the Bitcoin phenomenon.   If anything Bitcoin among other cryptocurrencies has come under a lot of criticism. The price looks extremely volatile. At the current time Bitcoin sits at $4,000. Last week it hit $4,400. Two years ago the price sat at $500. Arguably, it will be difficult for Bitcoin to hit mainstream retail adoption whilst the price continues to fluctuate wildly.

cryptocurrencies growth

The advantages of cryptocurrencies

However, there must be some reason as to why everyone appears to be talking about Bitcoin. There are several advantages.

Fixed money supply

Bitcoin has a natural limit in the money supply. Bitcoin mining cannot create more Bitcoins beyond 21 million Bitcoins. This means that there is no possibility of a devaluing of your Bitcoin assets through the creation of additional money. As the supply of Bitcoins remains fixed, so does the value.   Furthermore, cryptocurrency is a decentralized banking system. As such, there are many agents that that record all transactions and control the money supply. This means that there is no risk of any central bank printing money and ultimately devaluing the currency.

Anonymous transactions

As explained in the Bitcoin mining article the nature of Bitcoin transactions makes it highly anonymous. When new batches of transactions are added to the blockchain they are anonymized. The transaction is converted into a string of letters and numbers called a hash.   On the one hand this anonymity has led to Bitcoin being used for unscrupulous purposes. Many accusations of facilitating money laundering have been directed at Bitcoin exchanges. However, there may be genuine and honest reasons for anonymity. As such, cryptocurrencies are able to provide this need where the regular banking system might have failed.

Minimal transaction and exchange fees

Why should transferring money across boarded cost any more than transferring to someone within your own country? Should a shop have to pay money to the bank for facilitating the transaction? Why should it cost money to store your wealth in a bank?   The answer to all the above questions is that it shouldn’t. At least, it shouldn’t within a cryptocurrency system. Compare this with the current monetary system where the bank takes a fee for all of these things. In a cryptocurrency system, transaction and exchange fees are eliminated. This is largely due to the fact that the monopolistic position of the banks is non-existent in the cryptocurrency system.

 

A developing system

Whilst the current prices of cryptocurrencies are fairly volatile, over time this should reduce. As the currencies become more mainstream all of the advantages of cryptocurrencies over the regular banking system will vastly outweigh any drawbacks.

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