Blockchain and Cryptocurrency Beginner - The Distinctive Innovations of Cryptocurrency and Its Downsides
When it comes to cryptocurrencies, it is a major innovation that has shaped the whole financial sphere. The main distinctive innovation of cryptocurrency is without blockchain technology which is the core technology that powers cryptocurrencies. This means that cryptocurrencies inherits the benefits and features of blockchain technology.
Decentralized finance - This for me is a huge innovation as it means that users have full control of their activities and actions when it comes to cryptocurrency transactions. Anyone can send and receive cryptocurrency assets and also exchange from one cryptocurrency to another quickly in a peer-to-peer way without any third party interference. Currently, there are a lot of decentralized finance projects that allow users to easily exchange from one cryptocurrency to another cryptocurrency through peer-to-peer. This is a major innovation because before the introduction of blockchain technology and cryptocurrency, users would have to go through third party financial institutions like the banks to exchange from one currency to another currency. This caused a lot of transaction delays which made it such a slow process.
Security - This is another big innovation that blockchain technology and cryptocurrency has brought in the financial sphere. One of the main benefits of blockchain technology is that it is secure and transactions stored on the blockchain is secure and cannot be hacked or altered. The blockchain uses various encryption mechanisms to secure transactions and also makes it impossible for transaction records to be altered or erased from the blockchain. When a cryptocurrency transaction is recorded on the blockchain, the transaction is stored securely and cannot be changed. This makes it an innovative technology that mitigates against fraud or fraudulent activities and improves trust and authenticity.
No downtimes/Uninterrupted transactions - when it comes to cryptocurrencies transactions, there are no downtimes or interrupted transactions because cryptocurrencies run on the blockchain. Since there is no central server, it is almost impossible for a blockchain to have a downtown since there are a lot of nodes in different parts of the world that runs the blockchain. This makes it possible for anyone to send cryptocurrency transactions from one person to another, anywhere in the world at any time without any interruptions.
Decentralization - This is another innovation of cryptocurrencies because it allows the users to have full control and make decisions without any interference of central entity or authority. One of the main reasons why cryptocurrencies was created is to give users the freedom and full control to bypass the activities of central entities that have the control. With decentralization, users can send and receive cryptocurrencies freely without having to suffer the problems of the centralized entities.
Privacy - This is another powerful innovation of cryptocurrency. Cryptocurrency allows private transactions and also anonymous transactions as it is very difficult to associate cryptocurrency transactions to the real persons. This can be a good thing as people who do not want their worth to be publicly known. This can be very beneficial to prevent the attention of bad actors. With privacy, users can own cryptocurrencies without anyone attributing the cryptocurrencies to the real owners.
Wallets/Users have full control of their funds - When it comes to cryptocurrencies and cryptocurrency transactions, a non-custodial and secure wallet is key as it is what is used to store cryptocurrencies. With this, users have full control of their cryptocurrencies as far as they have their private keys and their keys are kept safe. This allows users to send or receive cryptocurrencies from anyone at any time.
Fast transaction speed - faster transactions is one of the main innovation of cryptocurrencies and one of the reasons why cryptocurrencies was created. With cryptocurrencies, anyone can send cryptocurrencies to any parts of the world faster in less time even as fast as few seconds. Depending on the blockchain which the cryptocurrency runs on, it can take a few second to send cryptocurrency transactions from one country to another and to any parts of the world as there are no third parties involved in the transaction process.
Main downsides
Irreversibility of cryptocurrency transactions - The main downsides to cryptocurrencies is that transaction are final and cannot be reversed. This means that any cryptocurrency sent to the wrong address or to the wrong person due to mistake or due to phishing attack cannot be recovered or reversed back to the owner and is lost forever. That is why users have to be very careful when sending cryptocurrencies to any address or user.
Transactions cannot be easily traced to the real persons - This can be a major downside to cryptocurrency because a lot of fraudsters or bad actors can steal people’s money and the address where the stolen cryptocurrencies was sent to cannot be traced to the fraudsters or bad actors.
High price volatility - This is one of the big downsides of cryptocurrencies as it is highly volatile. Prices of cryptocurrencies is known to be volatile, this means that cryptocurrency prices can go up and down in a short period of time, which can lead to a huge drop in value. This can be a big problem when using certain cryptocurrencies as a fast and secure payment solution as the prices of the cryptocurrency can fall and the value dropped in relation to the dollar value when sending or receiving payments.
Loss of funds due to inability to recover lost keys or seed phrases - This is another major downside to cryptocurrencies as it is almost impossible to recover lost keys which in turn leads to loss of funds. Blockchains do not have the ability to recover lost keys such as private keys or seed phrases. This means that users have to be very careful and always keep their keys or seed phrased very safe. Once the keys or seed phrase is lost, the cryptocurrency funds are lost forever as there is no way to recover lost keys or seed phrases.
