The cryptocurrency world has recently been hit by a wave of volatility. Bitcoin broke down the threshold of 30 thousand dollars and then recovered this level already today. From last November’s records to nearly $ 69,000, the value of the most famous cryptocurrency has more than halved. In general, the cryptocurrency market in 2022 it burned more than $ 1.6 trillion. Among other things, bitcoin is currently assimilated to a high-growth security (like a technology security) and therefore also suffers from the tightening of monetary policy by the Fed and the consequent rise in market rates.
A central theme concerns the business models and governance of cryptocurrencies. Indeed, regulatory uncertainties are driving investors away from this sector as well as the worsening economic outlook and the slowdown in growth between now and the end of the year. To make matters worse, what happened a few days ago to the earth (moon) ecosystem also weighs on the trend of cryptocurrencies. In this very complex picture, it is necessary to clarify and compare the pros and cons of an investment in bitcoin.
Main advantages of bitcoin
– Unlike traditional bitcoin currencies it is totally independent of governments, banks and corporations and therefore no authority can in any way interfere with transactions or impose additional charges for exchanges or steal users’ money. In a word, bitcoin is one decentralized currency, was designed so that any evolved person or machine involved in the process of mining and verifying transactions could be part of a large network, so even if a part of the network were turned off, money would still move. Indeed, no one can take control of a decentralized network.
– The movements of bitcoin are totally transparentin fact, every single transaction is publicly archived in a gigantic accounting book known as the Blockchain. There Blockchain contains every single transaction ever since its creation until today. If someone tried to change even a single letter or digit in a transaction block, it would affect all subsequent blocks as well. And being a public ledger, errors and fraud attempts can be so easily identified and corrected by anyone.
– Security and control: unlike what happens with other payment methods, bitcoin users have total control over their transactions, in fact, no one can withdraw money from a wallet without the explicit consent of the owner.
– It cannot be counterfeit: this thanks to the blockchain and the various consensus mechanisms.
– Anonymity: nowadays banks know every detail of their customers: movements, telephone numbers, balance, spending habits and so on. Conversely, bitcoin works differently as the wallet address cannot be linked to any personal information.
– Speed: the bitcoin network processes payments almost instantaneously, in fact, regardless of the geographical distance, it takes a few minutes to send your money to another user, unlike traditional banks where the timing is considerably longer.
– Non-rejectability: Once the bitcoins have been shipped, it is not possible to get them back, unless the recipient decides to send them back. This mechanism makes it impossible to scam someone by claiming that they have not received the money.
– High portability: one of the characteristics of any currency is portability, that is the simplicity of transport and since bitcoin exists only in digital form, it can be easily transported on a USB stick or stored on the network. Bitcoin offers a valid alternative to cash in terms of security, transparency of transactions and in terms of counterfeiting.
– When using bitcoins it is not necessary to comply with the rules imposed by the PCI (Payment Card Industry) thus allowing users to explore new markets that do not allow the use of traditional credit cards.
– Bitcoin can be easily converted into all world currencies or it can be considered a stand-alone unit of account.
– It can be used all over the worldin fact, there are more and more points of sale that allow this method of payment
– Bitcoin offre cvery low transaction costs compared to traditional payment methods.
Main disadvantages of bitcoin
– Legal Matters: the legal status of bitcoin varies considerably from country to country, in fact, if in some states the use of bitcoins is encouraged (El Salvador), in other states it has been banned and made illegal (China).
– Level of recognition: if in many countries bitcoin is legal and perfectly recognized as a currency, in others there are still no laws and regulations aimed at regulating its use. Despite numerous advances, it is still not possible to completely abandon traditional money to use bitcoin alone.
– Lost Keys: to access a bitcoin wallet you need a key which consists of an alphanumeric code and losing your key means permanently losing access to your wallet. On the contrary, if we lose the passwords to access our current account, if we go to the bank we can regain possession of the credentials; instead in the case of bitcoins, lacking a central authority, if the key is lost, access to the wallet is lost.
– Volatility: the price of bitcoin rises and falls continuously and its value is unpredictable and can change drastically and very quickly. For this reason bitcoin is considered a high risk asset class and it is not recommended to keep too high a percentage of your portfolio invested in cryptocurrencies. The role of bitcoins as a store of value is seriously compromised by the high volatility of the price. Such volatility also undermines bitcoin’s role as a medium of exchange as large retail chains are much less likely to accept it as a form of payment.
– Continuous development: the future of bitcoin and other cryptocurrencies is not yet defined and definitive and cannot be predicted by anyone. At the moment, banks and governments do not control bitcoin, so much so that the markets are not regulated. However, with the increase in popularity of bitcoin, the possibility that one day governments around the world will decide to impose their control on cryptocurrency and if that were the case, one of the founding principles of bitcoin would be missing: decentralization.
– Irreversible paymentsWhile it is an advantage because it reduces the risk of scams, it is also important to make sure that the person or company you are dealing with is trustworthy.
– Transactions can be tracked: since the bitcoin system is based on a public ledger, anyone can track the transactions of a bitcoin address and thus trace the amount of the wallet. For this reason it becomes essential to protect anonymity.
– Unclear taxation: bitcoin is not an official currency and since legal systems require you to pay taxes on anything of value, it is your responsibility to pay taxes and comply with the rules set by your government.
– Anonymity: if on the one hand, (as we said among the advantages) some individuals simply do not want their money to be tracked and managed by external authorities, on the other hand it is possible that the anonymity of Bitcoin supports illegal activities such as the trade in drugs and terrorism.