A cryptocurrency is a virtual currency that uses cryptography for security. In the modern world, some of the most known cryptocurrencies are Bitcoin, Ethereum, and Ripple (Bunjaki et al., 2017, p. 33). The main advantages of cryptocurrencies are transparency, anonymity, confidentiality, and privacy (p. 33). The authors claim that the cryptocurrency system of payments is transparent because everyone can see the financial operations of all participants (p. 33). At the same time, one should consider both advantages and disadvantages of cryptocurrencies to predict their future.
The main online virtual currency is Bitcoin. According to Meiklejon et al. (2016), bitcoin is “a chain of transactions from one owner to the next,” where each user has a public key and a set of addresses they can use for operations (as cited by Bunjaki et al., 2017, p. 34). To prevent double spending, all users in the system should be aware of all operations (p. 34). The authors mention the pioneer of cryptography, Horst Fietzel, and his 48-bit block Lucifer cipher (p. 35). Later, David Chaum introduced digital currency, E-Cash, and founded DigiCash in 1990 (p. 36).
One of the advantages of cryptocurrencies is an open code for mining. It means that all data about the transactions are public, but the data about a sender and a recipient are hidden. No inflation, unlimited possibilities of commerce, and peer-to-peer currency networks are other benefits of cryptocurrencies. Besides, they are easy to use, operations are quick, commissions and fees are only 0.1% of the transaction amount, there is no central control authority, they belong only to the wallet owner, and it is impossible to use someone’s personal information for fraud activities (pp. 37-38). However, such disadvantages as strong volatility, large risks of long-term investing, the threat of terrorist or illegal activities, money laundering, and no legal guarantees in case of bankruptcy should not be ignored when thinking of the future of cryptocurrencies.
Reference
Bunjaki, F., Gjorgieva-Trajkovska, O., & Miteva-Kacarski, E. (2017). Cryptocurrencies – Advantages and disadvantages. Journal of Economics, 2(1), 31-39. Web.