8 benefits of cryptocurrency | The Motley Fool

How many cryptocurrencies are there?

Cryptocurrency has become extremely popular over the past few years, but many consumers and investors may be wondering what all the fuss is all about. Why would anyone choose cryptocurrency when their local currency works great for most things? Why would anyone invest in a cryptocurrency?

In fact, there are many advantages to using and investing in cryptocurrency. Here are the top eight benefits to consider.

Image source: Getty Images.

8 benefits of cryptocurrency

  • Transaction speed
  • Transaction costs
  • Accessibility
  • Security
  • Private life
  • Transparency
  • Diversification
  • Inflation protection

1. Speed ​​of transactions

If you want to send money to someone in the United States, there are few ways to transfer money or assets from one account to another faster than with cryptocurrency. Most transactions at US financial institutions are settled in three to five days. A bank 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 minutes. Once the block containing your transaction is confirmed by the network, it is fully settled and the funds are available for use.

2. Transaction costs

The cost of cryptocurrency transactions 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 abroad can be even more expensive.

Cryptocurrency transactions are generally cheaper. However, you should note that demand on the blockchain may increase transaction costs. Even so, median transaction fees remain lower than wire transfer fees, even on the most crowded blockchains.

3. Accessibility

Anyone can use cryptocurrency. All you need is a computer or smartphone and an internet connection. The process of creating a cryptocurrency wallet is extremely fast compared to opening an account at a traditional financial institution. There is no identity verification. There is no background or credit check.

Cryptocurrency offers unbanked people a way to access financial services without having to go through a centralized authority. There are many reasons why a person may not be able or unwilling to open a traditional bank account. Using cryptocurrency can allow people who don’t use traditional banking services to easily transact online or send money to loved ones.

4. Security

Unless someone has access to your crypto wallet’s private key, they cannot sign transactions or access your funds. However, if you lose your private key, there is no way to recover your funds.

Additionally, transactions are secured by the nature of the blockchain system and the distributed network of computers verifying the transactions. As computing power is added to the network, it becomes even more secure.

Any attack on the network and attempt to alter the blockchain would require enough computing power to confirm multiple blocks before the rest of the network could verify the accuracy of the ledger. For popular blockchains such as Bitcoin (CRYPTO: BTC) Where Ethereum (CRYPTO:ETH)this type of attack is prohibitively expensive.

Cases of hacked cryptocurrency accounts are usually linked to poor security in a centralized exchange. If you keep your crypto assets in your own wallet, it’s much more secure.

A rendering of a light chain.

Image source: Getty Images.

5. Confidentiality

Since you don’t need to create an account at a financial institution to transact with cryptocurrency, you can maintain a level of privacy. Transactions are pseudonymous, meaning you have an identifier on the blockchain – your wallet address – but it doesn’t include any specific information about you.

This level of confidentiality may be desirable in many cases (both innocent and illicit). That said, if someone associates a wallet address with an identity, all transaction data is public. There are several ways to hide transactions further, as well as several privacy-focused coins to reinforce the private nature of cryptocurrency.

6. Transparency

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 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 that they sent money and received it or have the funds available for a transaction.

7. Diversification

Cryptocurrency can offer investors diversification from traditional financial assets such as stocks and bonds. While there is limited history on the price action of crypto markets relative to stocks or bonds, so far prices do not appear to be correlated with other markets. This can make it a good source of portfolio diversification.

By combining assets with minimal price correlation, you can generate more consistent returns. If your stock portfolio goes down, your crypto asset can 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 crypto-heavy.

8. Inflation protection

Many see Bitcoin and other cryptocurrencies as providing inflation protection. Bitcoin has a strict cap on the total number of coins that will be minted. So, as the growth in money supply outpaces the growth in the supply of Bitcoin, the price of Bitcoin is expected to increase. There are many other cryptocurrencies that use mechanisms to cap supply and can act as an inflation hedge.

The value of cryptocurrency

With all the advantages of cryptocurrency over fiat currency and other asset classes, it is hard to argue that there is 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 will only become more accessible over time with fewer technical hurdles. Combined with the benefits of diversification and the potential for inflation hedging, the benefits of adding crypto or crypto stocks to your portfolio start to add up.