Many people may have started trading virtual currencies due to the rise in the price of virtual currencies over the past few years.
While the speculative side is gaining momentum, the current situation is that there are not that many people who are familiar with the technical side.
In this article, we will tell you about the useful aspects of virtual currency, as well as its advantages and disadvantages.
Difference between virtual currency and fiat currency
When thinking about the origins of virtual currency, virtual currency attracted attention as a technological innovation that overturned the concept of legal currency.
Since legal currency is based on the trust of the country, its value depends on the trust of the country. For example, if the Japanese government were to commit fraud and increase or decrease the amount of currency without permission, the value of the currency would plummet.
Conversely, fiat currencies are structured so that the value of the currency can be controlled by the convenience of some administrators.
On the other hand, in the world of virtual currencies, many currencies do not have such administrators. It is a decentralized system in which all participants manage the system without appointing a specific administrator.
Blockchain, the core technology of virtual currency
The characteristics of virtual currency can be easily understood by understanding the mechanism of blockchain, which is its core technology. Here we will briefly look at the blockchain of Bitcoin (BTC), a representative virtual currency.
Simply put, blockchain is a shared public ledger. All past transaction history is recorded on this blockchain, and anyone can view that history.
Information such as transaction history and time is stored in the form of a single block, and these blocks are connected in chronological order to form a ledger, which is why it is called a blockchain.
The fact that anyone can view the transaction history means that there is a risk that it could be rewritten, but the process of preventing this transaction history from being easily rewritten is called mining.
Mining is a distributed consensus system
Mining is a decentralized consensus system, and without this process, new transaction history cannot be added.
Mining itself is like a random lottery, where the answer is derived from an infinite number of numbers through a huge amount of calculation work. This makes it virtually impossible to replace any part of the blockchain. This prevents fraud such as changing the contents of the blockchain and invalidating payments.
The people who perform this calculation work are called miners, and the first miner to get the correct answer will be paid a fixed amount of Bitcoin (BTC) as a reward.
Virtual currency is useful in times like this!
Virtual currencies have several advantages over fiat currencies.
international remittance
One of them is international remittance. Generally, when making an international remittance, banks in different countries need to communicate with each other.
As a result, fees have been higher than for domestic remittances, and it has taken time to receive the money, which has been an issue. However, using virtual currency, it is technically possible to send money internationally without going through a bank.
In other words, there are advantages in terms of time and fees.
No need to exchange money
Also, since virtual currency is universal, there is no need to exchange money.
When remitting fiat currency, it is necessary to exchange the home currency and the currency of the recipient country in the foreign exchange market, so in addition to remittance fees, exchange fees are costs that cannot be ignored.
One advantage is that you can exchange transactions in the same currency unit without worrying about exchange costs.
Not easily influenced by a country’s political or economic situation
Furthermore, fiat currency is directly affected by political collapse or economic collapse in the area where it is used, so it can become waste paper in an instant.
In the past, countries such as Zimbabwe and Venezuela experienced a phenomenon in which the value of their legal currencies plummeted. On the other hand, virtual currencies are less susceptible to the political and economic conditions of a country.
Therefore, in countries where hyperinflation occurs frequently, many people continue to hold virtual currency as a financial asset instead of their national currency.
What are the disadvantages of virtual currency?
On the other hand, such virtual currencies also have disadvantages.
Virtual currencies are also said to be high risk and high return, so if you are not careful, you may fall into unexpected pitfalls.
Prices fluctuate drastically
When looking at virtual currencies as an investment target, the range of price rises and falls is extremely large, so it is possible to lose your assets in an instant. Of course, if you think about it the other way around, you may be able to increase your assets all at once, but the element of gambling becomes stronger.
If you want to make money with virtual currency, you need to gather information thoroughly and time your transactions accordingly.
Be careful of problems on the Internet
In addition, virtual currency is a currency managed on the Internet. Therefore, one of the disadvantages is that it is easily affected by problems on the Internet.
Handling your assets on the Internet means that you are at risk of being hacked. Therefore, when managing virtual currency, how to protect your assets is an important point.
Virtual currency is managed in a decentralized manner
One way to do this is distributed management. A place to store virtual currency is called a wallet, and you can have multiple wallets.
Therefore, by owning multiple wallets and dispersing your assets across multiple locations, you can reduce the damage caused by hacking.
Another option is to manage virtual currency separately from the internet. By using a “hardware wallet” among wallets, you can manage virtual currency offline and strengthen security.
The places where you can use virtual currency are currently limited.
Another disadvantage of virtual currency is that there are few places where it can be used. Although it is gradually increasing around the world, virtual currencies are currently mostly used only as an investment object.
Of course, it is an attractive investment target, but there are only a limited number of places where virtual currency can be used for payments, etc., and it is not very practical.
It seems that it will still take some time for virtual currency to become popular, but as the practicality of virtual currency increases, the price is expected to rise further, so it may become a promising financial asset. yeah.
Summary of the convenience of virtual currency
Cryptocurrencies often attract attention for their speculative aspects, and most people invest in them without knowing how they work.
However, in 2018, the spotlight gradually began to shine on the technical aspects, and it is expected that practical application will progress steadily in the future.
As virtual currency technology develops, it may be used in various fields other than \fields such as remittances and payments. Since it is a currency that can be used globally, there is a good chance that it will be involved in solving global problems.
Keep an eye on future news in the virtual currency industry to see how virtual currencies will grow.