Digital Currency

A typical exam question asks for the pros and cons of moving from traditional money to cryptocurrency.

Advantages

• Decentralised: no single bank or government can freeze accounts, devalue the currency by printing more, or block specific transactions.
• Fast international transfers: cross-border payments settle in minutes, not days.
• Low fees (in periods of low congestion) compared to international wire transfers.
• Open ledger: anyone can audit the chain to confirm that the supply rules are being followed.
• Pseudonymous: users do not have to reveal their real identity to send or receive funds.
• Programmable: smart-contract blockchains (Ethereum and others) let people build automated financial agreements, marketplaces and games on top of the same chain.

Disadvantages

• Highly volatile prices make cryptocurrency awkward for everyday spending and risky as a savings instrument.
• Irreversible transactions: if you send money to the wrong address (or to a scammer), there is no central authority that can refund you.
• No consumer protection: no equivalent of a chargeback when goods are not delivered or services not provided.
• Environmental cost: proof-of-work mining (especially Bitcoin) consumes huge amounts of electricity, often from non-renewable sources.
• Used for illegal activity: anonymity has made cryptocurrencies popular with ransomware, fraud, dark-web marketplaces and money laundering.
• Technical literacy required: managing wallets, private keys and addresses is unforgiving. A lost private key means lost money, permanently.
• Regulation varies and is changing: some countries ban or restrict crypto; tax treatment is complicated and inconsistent.
• Scaling limits: most blockchains can only process a small number of transactions per second compared to traditional payment networks (Visa handles thousands per second; Bitcoin handles a handful).

When cryptocurrency makes sense and when it does not