Why Cryptocurrency Is Not The Future?
Cryptocurrency is considered to be the future of money. But there are certain factors against it. In this article, I will discuss why cryptocurrency is not the future.
Cryptocurrency has got huge attention in recent years and enthusiasts believe it to be the future of money. However, a critical analysis presents several reasons why cryptocurrency is not the future. In this article, we will explore the challenges and limitations of cryptocurrency, and what are the alternatives and potential future.
Before proceeding further, let us discuss the meaning of cryptocurrency. Cryptocurrency is a digital currency that uses blockchain technology to maintain the record of transactions. Cryptocurrency uses cryptography to make sure that the transactions are secure. A few examples of cryptocurrency are Bitcoin, Ethereum, Dogecoin, Litecoin, Ripple, etc. Each cryptocurrency has unique features and underlying technology.
Challenges of cryptocurrency
Price fluctuations and volatility
Cryptocurrency is extremely volatile and one can observe sudden price fluctuations in a single day. The image posted below is the price chart of Bitcoin. On 20th April 2023, the price fell from above 25,75,000 INR to less than 24,75,000 INR. This makes everyday transactions unsuitable for small or retail investors.
Scalability issues
Cryptocurrencies experience difficulty when the processing of a high volume of transactions needs to be done quickly. However, this is not the problem with paper currency or even the money kept in the bank’s savings account. One can easily send or hand over the money without any difficulty of transaction issues.
Lack of regulations
Cryptocurrency is not regulated under the traditional banking system. The decentralized nature of cryptocurrency makes it vulnerable to illegal activities like money laundering.
However, this is not the case with paper currency because an individual conducting illegal activities or carrying huge money is answerable to the government.
Environmental impact
Cryptocurrency mining has resulted in a grave impact on the environment due to excessive carbon emissions. Moreover, the processors used to mine the cryptocurrency experiences short life due to over-utilization.
Limited merchant acceptance
Cryptocurrency is accepted as a mode of payment by a few businesses. Its acceptance rate is relatively low because the majority of traditional merchants and online retailers prefer to deal in government-approved currency.
Technical barriers
An individual who wants to own the currency must be technically proficient to store, manage and transact securely. There can be complexities related to crypto wallets, private keys, and transactions barrier, adding to the difficulty to use the currency.
Lack of user-friendly interfaces
The majority of crypto wallets and platforms have complex and unintuitive interfaces, making it extremely difficult for an average user to navigate and understand the functionality.
Heavy taxation
Investors who are earning a profit on the trading of cryptocurrency have to pay huge taxes. For every profitable transaction, the investor has to pay a 30% tax in India. The tax is not deducted from the overall annual profit but on every profitable transaction. This means if an investor is incurring losses, then the loss amount is not deducted from the profits earned. In the US, 37% tax is deducted on short-term capital gains and around 20% tax on long-term capital gains.
Alternatives to cryptocurrency
Stablecoins
Stablecoins are a type of cryptocurrency designed to reduce the volatility of price by pegging their value to a specific asset like a commodity or a fiat currency. The objective of stablecoins is to provide quick and borderless transactions while at the same time decreasing the risk of price fluctuations.
Central Bank digital currencies
It is a digital representation of Fiat currencies, released and regulated by the central authorities. It maintains control and oversight, to benefit the digital currency holders with the stability of traditional Fiat currencies.
Decentralized finance
Decentralized finance platforms leverage blockchain technology to create decentralized applications for several financial services like borrowing, lending, trading, etc, without any requirement for intermediaries.
Future of digital currency
The development of Central Bank digital currencies can provide more stable and regulated digital currency alternatives. It can be easily integrated with the existing financial systems so that security can be ensured and potential concerns can be addressed.
To conclude, the above analysis presents the reason why cryptocurrency is not the future.
Disclaimer: If you want to invest in the crypto, you should consult your financial advisor before making a buying decision. You should assess the risk and study the complete details.
Frequently asked questions
Why crypto is not a good investment?
Price fluctuations and volatility
Scalability issues
Lack of regulations
Environmental impact
Limited merchant acceptance
What is the biggest problem with cryptocurrency?
Huge volatility
Does crypto have a future?
Crypto has a future if the investors consider it from a long-term perspective.
Is crypto safe or not?
Yes, crypto is safe if the user is efficient in technology and knows about private keys and passwords.
What could be better than cryptocurrency?
Stocks, mutual funds, bonds, gold, and real estate can be better than cryptocurrency.
Is crypto safer than gold?
No, crypto is not safer than gold. Crypto is highly volatile but gold is less volatile.
Is it risky to mine crypto?
Yes, crypto mining is risky.
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