The pros and cons of leveraging crypto for international transactions

Cryptocurrency is any form of currency that exists digitally and uses cryptography to secure transactions, which makes it nearly impossible to double spend or counterfeit. Crypto is not a physical unit like a dollar bill or coins, but rather a mathematical computation. The term cryptocurrency was derived from the combination of “cryptography” and “currency.”

How does cryptocurrency work?

Cryptocurrencies are not issued by any central authority which renders them theoretically immune to govt interference and manipulation. This digital payment system does not rely on banks to verify transactions and instead of physical money being exchanged, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions.

When a cryptocurrency is created prior to issuance, or is issued by a single issuer, it is generally considered centralized. Individual cryptocurrency assets are often stored in a digital wallet which makes it easy to keep track of the same. However, when implemented with decentralized control, each cryptocurrency works through distributed ledger technology, typically known as a blockchain, that serves as a public financial transaction database.

Computer technology is used in a process called mining to solve complicated mathematical problems that generate coins and this is how units of cryptocurrency are created. Alternatively, crypto users can also purchase currencies from brokers and cryptocurrency exchanges, before going ahead to store, spend and keep track of them using digital wallets.

Despite the fact that owning cryptocurrency means that you don’t own anything tangible, what you own is a key that allows you to move a record or a unit of measure from one person to another without involvement of a third party. Some users also purchase tech products, luxury goods, cars, insurance and much more using cryptocurrency.

Although crypto has a reputation of being unstable, due to high investor losses due to scams, hacks and bugs, some users consider it a better investment option than bonds and stocks.

Types of cryptocurrencies

Bitcoin is not only considered to be the first type of crypto created, but also the most popular and valuable digital currency. However, there have been thousands of virtual currencies that have emerged over the years. Below is a breakdown of some of the most popular crypto:

Bitcoin

Bitcoin is the most popular and valuable crypto so far. Bitcoin is a general purpose crypto and is a main pioneer in the industry, which operates using blockchain, allowing anonymous digital exchanges, and heavily encrypted hash codes across a peer-to-peer network. Bitcoin was created by Satoshi Nakamoto and launched to the world in 2009, with the codes BTC or XBT.

Bitcoin operates with no central authority or banks, managing transactions and the issuing of bitcoins is carried out collectively by the network. It is open-source with its public design, meaning nobody owns Bitcoin and everyone can take part. With the estimated market capitalization at $883bn and average $47,000 per bitcoin, this crypto continues to soar.

Dogecoin

Dogecoin is also an open source peer-to-peer crypto that utilizes blockchain tech, a highly secure decentralized system of storing information as a public ledger that is maintained by a network of computers called nodes. Dogecoin, code name Doge, was created by Jackson Palmer and Billy Markus and first released in 2013 as a parody based on an internet meme.

It was a near worthless cryptocurrency until Chief Executive Officer of Tesla Elon Musk and renown investor Mark Cuban started popularizing it in 2021. The estimated market capitalization and average price of Dogecoin is $32 billion and $0.25 per coin, respectively.

Ethereum

Ethereum was created by Vitalik Buterin and Gavin Wood and first released in 2015 to be a primary competitor to Bitcoin. It is a tech that is home to digital money, payments and apps.

Ethereum introduced several new capabilities, using an open source, distributed blockchain and smart contracts in Ethereum’s Solidity programming language. Ethereum’s code, estimated market capitalization is ETH, $396bn and average price is $3,400 per ether.

Litecoin

Litecoin, an early Bitcoin alternative, initially rose to prominence thanks to its use of the Scrypt hashing algorithm, which is viewed by advocates as being easier to manage than the SHA-256 encryption used by Bitcoin. Created by Charlie Lee and released in 2011 with the code LTC, Litecoin has a market capitalization of $12bn and average price of $153 per coin.

Pros and cons of using cryptocurrency

Crypto has great potential to reshape the financial world as we know it, and to question the very existence of traditional financial infrastructure. Before you decide to invest in virtual currency however, it is vital to analyze the pros and cons of using crypto for international transactions. Here is a breakdown of some the pros and cons of using cryptocurrency:

Pros

  • Every cryptocurrency is recorded in a public ledger known as blockchain, which is inherently secure and private. Once an entry is made in a block chain, it can never be erased, making it possible to track the cryptocurrency. This prevents theft of cryptocurrency, double spending, counterfeiting and undoing transactions.
  • Since cryptocurrency is self governed and implemented with decentralized control, intermediaries such as banks and the government are cut out. This means that there are no payment processing fees, and the virtual currency is safeguarded from inflation and regulatory manipulation.
  • Cryptocurrency for international transfers and transactions are a generally quick, straightforward and cost effective process. For example, one can transfer Bitcoins from one digital wallet to another using a smartphone or a computer.
  • Unlike banks, cryptocurrency trade has no time constraints. With coins being mined and transactions being recorded around the clock, crypto markets are always open. So for investors who are on the go 24/7, cryptocurrency might be the best way to generate returns outside of normal working hours.

Cons

  • Although cryptocurrency is very secure, the exchange does not seem to be completely free from security issues. As a digital wallet owner, you could be hacked or even worse, lose the private key that lets you access your crypto assets. After gaining control by malicious means, hackers can access and easily transfer the funds from your cryptographic wallet to unknown accounts.
  • Cryptocurrency does not facilitate refunds and cancellations. In the event that there is a dispute between the concerned parties, or coins are mistakenly sent to the wrong digital wallet, the coins cannot be retrieved by the sender. This could be used to cheat users since others might create transactions where goods or services are never received.
  • Since the government and relevant financial bodies find it hard to trace users through their digital wallets, cryptocurrency is employed by many to carry out illegal transactions. Since the privacy and security of cryptocurrency transactions are high, some people convert their illicitly acquired money to hide its source and partake in illegal dealings like transacting on the dark web.

In conclusion

Although using crypto for international transactions and transfers is fast, cost effective and could offer great opportunities, virtual currency can be a risky investment that you should only consider if you are financially equipped and willing to make some losses along the way.

Gerald Ainomugisha is a freelance Content Solutions Provider (CSP) offering both content and copy writing services for businesses of all kinds, especially in the niches of management, marketing and technology.