Understanding What is Cryptocurrency and Its Strengths and Weaknesses
Cryptocurrency is a term for digital currency that can be used for transactions between users without the need to go through a third party. If in transactions in general the bank acts as a third party, in cryptocurrency , no one acts as an intermediary.
Cryptocurrency transactions originate from computer networks that use certain calculation algorithms. This mathematical calculation is called cryptography which uses blockchain technology. Bitcoin is the first and biggest type of cryptocurrency .
Cryptocurrency Principles
To better understand cryptocurrencies , see the explanation in each of the following characteristics:
Digital : Cryptocurrency is digital or virtual money, so it doesn't have a real form like coins or banknotes.
Peer-to-peer : Cryptocurrency is passed from sender to receiver online.
Global : Cryptocurrency is global and valid in all countries as long as the country recognizes cryptocurrency .
Encrypted : Unlike bank accounts which use real names, real identities are not used in cryptocurrency accounts . Users are hidden but everyone can see all the transactions that occur on the blockchain. Moreover, there are no restrictions or rules for what cryptocurrency transactions are used for.
Decentralized : The bank does not act as a central depository of money. Cryptocurrencies are not managed by a central server, that's why they are called decentralized.
However, all transactions are still recorded in the blockchain. The listing is done by cryptocurrency miners . Miners are the people who run servers and play a role in verifying transactions. The trick is to solve complex cryptography puzzles to validate transactions. If successful, the miner will get a commission in the form of digital money that can be used.
Mining digital money requires a series of software and solving computer algorithms. The device used must be a computer with special and sophisticated specifications, as well as large data storage.
Blockchain is like a ledger that contains data for every transaction. Anyone can access this platform even if they don't make virtual transactions.
Truthless : Users can send money to each other online without having to trust money or information to third parties (in this case the bank).
Get Rich Instantly from Cryptocurrency?
You can use cryptocurrency to make purchases. However, in Indonesia cryptocurrency is not yet a generally accepted form of payment. But recently, PayPal announced the launch of a new service that allows customers to buy, hold and sell crypto money from their PayPal account.
Apart from that, many people use cryptocurrencies as an investment. Maybe you've heard of many people getting rich quick from Bitcoin.
Since it was first released, the price of bitcoin has indeed increased very rapidly. However, the volatility is also high, that is, it suddenly increases or decreases in value drastically and in a short time.
Quoting from Investopedia (21/3/2021), the price of 1 Bitcoin (1BTC) was $1/Rp.14,000 in April 2011. This price rose 3200% within 3 months to $32/Rp.448,000 in the same year. However, the price fell to just $2/Rp 28,000 in November 2011.
In December 2014, the price of 1 BTC was $1156/Rp 16184000, but in early January 2015, the price dropped sharply to $315/Rp4410.00 in just a matter of days!
This makes cryptocurrency a high risk investment . It can be very profitable, but the potential for losses is also very large. In fact, as quoted by Forbes (26/2/2021), Bill Gates himself warned anyone to be careful when investing in cryptocurrencies . Except, if you have as much money as Elon Musk. In fact, Bill Gates emphasized that he would not 'go along' investing in Bitcoin.
In addition, the Financial Services Authority (OJK) warns that fraudulent cryptocurrency investments are becoming increasingly common, offering high-interest investments.
Therefore, before deciding to invest in any instrument, wisdom is needed. Get to know the risk profile first and adjust it to your goals and financial conditions.
Cryptocurrency Pros and Cons
After listening to the explanation above, it can be concluded that these are the advantages and disadvantages of cryptocurrencies :
Excess
- Everyone can own and transact with cryptocurrencies anywhere and anytime. There are no bank holidays, no state borders, and no bureaucracy.
- More resistant to monetary inflation. For example, Bitcoin only exists no more than 21 million bitcoins. This limited availability is meant to increase its value. Unlike bank money, which is constantly being printed, bitcoin's finitude makes it more resistant to inflation.
- Transparent, fast and practical.
- Protected against identity theft.
Weakness
- Because they do not use real identities, they are vulnerable to being used in illegal activities such as money laundering.
- High volatility, namely the value of a currency can suddenly rise or fall drastically and in a short time.
- Unpredictable currency values.