Advantages and disadvantages of Bitcoin and cryptocurrencies in 2024

Cryptocurrency Guide » Advantages and Disadvantages of cryptocurrencies

Advantages and disadvantages of cryptocurrencies

Currently, there are a multitude of cryptocurrencies. Every day, specialized media announce the creation of new virtual currencies. Although each of them presents differences and uses the blockchain in different ways, it is possible to establish certain common criteria among them.

In this article you will find a comparison of several of them and you will be able to see the advantages and disadvantages of digital currencies.

Main advantages of cryptocurrencies

• They use a decentralized system. Unlike fiat money, cryptocurrencies do not involve any third parties, such as banks, nor are they controlled by any entities, such as governments or central banks. This way, the value of cryptocurrencies cannot be manipulated by a few.
• They operate in a global and fast system. Cryptocurrency transfers take minutes (or even seconds) to complete and have low fees, regardless of the amount or destination of the transaction. In contrast, traditional banking usually takes days, or even weeks, to complete an international transfer, for which they charge high fees.
• It is not anonymous, but it uses pseudonyms. Contrary to popular belief, most cryptocurrencies are not anonymous, but it is true that they use pseudonyms. This is one of the great advantages of cryptocurrencies, as one of their goals is to protect the identity of their users. In other words, no one can profit from your banking information.
• They are based on secure protocol. Cryptocurrencies cannot be counterfeited. Their protocol is designed to prevent double spending and they have strong security measures to prevent hacking.
• It is a cost-effective system. Each transaction incurs fees that go towards paying the miners, who are responsible for maintaining the cryptocurrency blockchain. However, the costs of transactions are considerably cheaper than those of traditional banking. There have also emerged new cryptocurrencies that use a confirmation protocol known as Proof of Stake, which eliminates the need for miners and further reduces transaction costs.
• It is a completely transparent system. On one hand, its code is open and public. All cryptocurrencies have a white paper. It describes the functioning and code of the cryptocurrencies. On the other hand, transactions are also public. For example, you can check bitcoin transactions on blockchain.info.
• It allows for micropayments due to the high divisibility of digital coins. For example, one bitcoin can be divided into 100 million parts, allowing for very small value transfers.
• The system is autonomous and always operational. As it does not depend on any central entity, you can make instant transfers 24 hours a day, 365 days a year.
• They do not take up physical space. Welcome to the digital world!
• They have controlled issuance. The entire development of a cryptocurrency is described in its whitepaper and is sealed in its code. Its value cannot be manipulated by governments.
• They have opened up a new technological world thanks to blockchain. Furthermore, the benefits of cryptocurrencies go beyond financial systems. For example, with Ethereum, the understanding of blockchain was completely changed, leading to the development of multiple services unrelated to banking, thanks to smart contracts.

Main disadvantages of cryptocurrencies

• Currently, the value of cryptocurrencies is very volatile. Their price can vary considerably in a matter of hours. Investing in them can be very complicated. Perhaps the best option may be to invest long-term in the virtual coins you trust.
• There are too many cryptocurrencies and the reality is that few of them will become truly useful. The popularization of ICOs has skyrocketed the number of existing coins, which continues to increase. Therefore, in a few years, the scenario we know may change and the most valuable cryptocurrencies may be completely different.
• Another problem with cryptocurrencies is that they are not yet globally accepted. Among their main disadvantages are the measures that some governments are taking against them. In the face of this, no one can guarantee that they will be accepted in the future.
• Cryptocurrency exchanges have experienced some multimillion-dollar thefts, so they still have to invest a lot in security. Exchanges are platforms that allow the purchase of cryptocurrencies and it is these platforms that have security problems, not the virtual coins. On the other hand, do not forget that these thefts are also relatively common in traditional banking.
• Cryptocurrency transactions are irreversible. This is fundamental to the security of the system, but it can lead to a clear disadvantage: If you make a mistake, you will have lost your cryptocurrencies.
• The popularity that cryptocurrencies have achieved has attracted many people without financial knowledge. This has led to the appearance of numerous cryptocurrency scammers. That is why it is very important to use highly recognized exchange platforms and not believe in systems that promise high returns.
• Many cryptocurrency projects have no real backing. Many ICOs emerge with the sole objective of raising money, without having a serious project behind them. This gives cryptocurrencies a very bad reputation as they can be considered scams. Therefore, study the project behind an ICO very well before investing in it.

» Related article: Guide to investing in a cryptocurrency ICO.

These are the advantages and disadvantages of cryptocurrencies, in general. However, each digital currency has its own characteristics that give them specific benefits and drawbacks. Next, we will see the most important ones of the 12 most relevant cryptocurrencies at the moment.

Our goal is not to collect 10 advantages and 10 disadvantages of cryptocurrency, but to individually analyze what can be the characteristics of the success of a cryptocurrency and what can lead them to failure. Let's start with the advantages and disadvantages of bitcoins.

Advantages and disadvantages of bitcoin

Bitcoin was the currency with which it all began. It was born in 2009 offering a new decentralized payment system and creating the first version of the blockchain. Currently, it is the top currency by market capitalization, but it's not all benefits in bitcoin, it has pros and cons. Below you will find the advantages and risks of bitcoin.

Main advantages of bitcoin

The main benefit of bitcoin is that it is the largest cryptocurrency in the market. Although its price continues to fluctuate, it is less volatile than other virtual currencies. The market's confidence in the first cryptocurrency provides security and is one of the advantages of investing in bitcoin.

Main disadvantages of Bitcoin

The high popularity of Bitcoin has led to an increase in transactions, sometimes saturating its network. This is the biggest problem with Bitcoin and has resulted in an increase in its fees.

In addition, the Bitcoin blockchain has certain limitations. On one hand, transactions are grouped into blocks that are processed every 10 minutes, which is a disadvantage of Bitcoin compared to other faster cryptocurrencies. On the other hand, the blockchain is limited to approximately 7 transactions per second, which can cause network saturation.

Furthermore, Bitcoin is mainly focused on financial transactions. Digital contracts have revolutionized the blockchain, but their use is limited in Bitcoin. This is a major disadvantage of this cryptocurrency compared to others like Ethereum, Cardano, or EOS.

Lastly, one of the current problems with Bitcoin is that mining requires a significant amount of electricity. The potential environmental problems that this consumption would cause if globally adopted are one of the main criticisms of Bitcoin.

The use of the "Proof of Stake" confirmation protocol instead of the current "Proof of Work" would greatly solve all these problems.

Advantages and disadvantages of Ethereum

Ethereum is a cryptocurrency created by Vitalik Buterin, a young Russian who released this currency in 2015. Like bitcoin, it uses blockchain. However, the Ethereum network is based on an open-source system that allows the creation of what is known as "smart contracts". This network is also managed by all miners who use and manage this currency.

» Related article: What is ethereum.

Below, you will find the advantages and disadvantages of the cryptocurrency Ethereum:

Main advantages of Ethereum

The main advantage of Ethereum is the possibility of carrying out these "smart contracts". This allows agreements to be made between parties based on certain events without the need for any third party.

The possibilities of this functionality are endless, to the extent that it is being integrated at the corporate level in many top-level companies. From companies in the financial sector, such as the Spanish bank Santander, to logistics companies like the Danish Maersk.

The establishment of the Ethereum Enterprise Alliance (EEA) is encouraging the use of Ethereum in companies to continue growing.

Main disadvantages of Ethereum

When it comes to managing contracts, the Ethereum platform is slower than other cryptocurrencies, which is the main drawback of Ethereum.

In addition, although the use of this cryptocurrency is encouraged in companies, it is not as accessible to individual developers. Even though its protocol is also "open source", the lack of documentation makes it difficult for developers who want to delve into "smart contracts".

On the other hand, the Ethereum network also allows the creation of other cryptocurrencies within its protocol, known as tokens. What may initially seem like an advantage, is not that much. Nowadays, a multitude of useless coins are being created on Ethereum, which further slows down its already heavy platform.

However, Ethereum is already updating itself to transition to "Proof of Stake", which would speed up its platform and increase its security.

Advantages and Disadvantages of Ripple

Ripple is a cryptocurrency that was created with the intention of working with banks. Its objective is to perform banking transactions in the most efficient way possible. This has led to numerous international banks contracting the services of Ripple. According to some studies, this produces a savings of $3.50 per transfer for banks.

Main advantages of Ripple

The main benefit of Ripple is its association with banks. If it is globally adopted, the viability of this project would be assured. Some of its agreements with international banks, such as Santander, seem to predict that it will be.

Another advantage of Ripple is its reliability and the speed of its transfers. It has been demonstrated that it is capable of processing over 50,000 transactions per second.

Main disadvantages of Ripple

The main drawback of Ripple is also its association with banks. One of the main characteristics of cryptocurrencies is their decentralization, that is, their independence from third parties. Ripple's agreement with entities breaks the foundations of virtual currencies, being the main disadvantage of the cryptocurrency.

Advantages and disadvantages of Litecoin

Litecoin was released in 2011 under the MIT license. It is a duplicate of bitcoin, but with certain differences:

• Blocks are processed every 2.5 minutes, compared to bitcoin's 10 minutes.
• Its issuance is also fixed, but it is 4 times greater than that of bitcoin, up to 84 million units.
• They add a function known as script to mining, making it lighter.

Litecoin was conceived with the aim of "being the silver to bitcoin's gold," hence it has very similar characteristics.

Main advantages of Litecoin

The main benefit of Litecoin is the speed of its transactions. The speed of its operation and confirmation process is much higher than that of other cryptocurrencies.

Main disadvantages of Litecoin

Litecoin presents very similar disadvantages to Bitcoin. The need for large amounts of energy could also be considered the main drawback of Litecoin.

Advantages and disadvantages of Bitcoin Cash

Bitcoin Cash (BCH) was born in August 2017 as an alternative to the Bitcoin project. It emerged as a result of a hard fork of the original Bitcoin blockchain.

Its emergence in the ecosystem is the result of the need to increase the transfer capacity of the Bitcoin network. In mid-2017, cryptocurrency transactions skyrocketed, leading to network congestion and increased fees. Currently, Bitcoin Cash can process up to 32 MB per block, compared to Bitcoin's 2 MB.

Main advantages of Bitcoin Cash

The main benefit of Bitcoin Cash is its transaction capacity. Bitcoin Cash allows up to 92 transactions per second, compared to 7 of bitcoin.

Main disadvantages of Bitcoin Cash

Bitcoin Cash prioritizes transaction speed over maintaining a public, permissionless, and censorship-resistant network, which goes against the core philosophy of transparency in cryptocurrencies.

In addition, increasing the block capacity presents a major drawback for Bitcoin Cash. Processing such data is much heavier, requiring more powerful hardware and higher electricity consumption.

Advantages and disadvantages of IOTA

IOTA does not use a blockchain, but a shared ledger based on a mathematical structure called a directed acyclic graph. Its goal is to securely enable the exchange of information and value between machines in the Internet of Things.

It was born in June 2017 and currently has numerous projects ranging from Smart Cities, FinTech functionalities, e-Health applications, or mobility. Nowadays, it is one of the most popular cryptocurrencies.

Main advantages of IOTA

The main benefit of IOTA is its high usability. The development of IoT and the speed of IOTA transactions are boosting its adoption in different environments.

Another advantage of the cryptocurrency is that the IOTA protocol is faster the more it is used, which eliminates scalability issues.

Main disadvantages of IOTA

Many cryptography experts are questioning the security of the IOTA protocol. Additionally, some criticisms have been made regarding its decentralization, as IOTA has a Coordinator and has made an agreement with Microsoft.

Advantages and disadvantages of EOS

EOS is another blockchain-based cryptocurrency. It was the first cryptocurrency to adopt the "Proof of Stake" protocol that eliminates miners. It was created in 2017 with the goal of bringing blockchain to all companies. Its protocol simulates many of the features of a regular computer, which allows for the management of much more complicated smart contracts.

Main advantages of EOS

Among the objectives of many cryptocurrencies is to achieve transaction capacity comparable to companies like VISA or PayPal. Some sources indicate that EOS could easily surpass these companies, processing more than 1 million transactions per second.

Main disadvantages of EOS

The new confirmation protocol requires you to own cryptocurrencies to be able to run an application on its blockchain. But how is this going to work? Well, it's still not very clear. EOS tokens could be acquired long before the launch of its network. In June 2018, the network processed its first block and many criticized some inconveniences of EOS, such as the viability of its protocol and the centralization of its system.

Advantages and disadvantages of NEO

NEO is a platform for smart contracts of Chinese origin, an improved replica of Ethereum. The NEO platform improves compatibility and supports different programming languages, such as C++, Java or Javascript, breaking entry barriers for its developers.

In addition, it increases the security of the platform by eliminating certain vulnerabilities of the Ethereum platform contracts.

Main advantages of NEO

Currently, NEO is the largest cryptocurrency in China. Among the benefits of NEO is its great compatibility with other programming languages, which has attracted many programmers who wanted to develop decentralized applications without learning a new cryptographic language.

In addition, its creators promise transaction speeds 15 times higher than those allowed by Ethereum.

Main disadvantages of EOS

Undoubtedly, the main disadvantage of NEO is its Chinese origin. This cryptocurrency receives a lot of criticism for its possible centralization or the likelihood of the Chinese government intervening in the cryptocurrency market with strong regulation.

Advantages and disadvantages of TRON

TRON is a platform created in September 2017 by Chinese entrepreneur Justin Sun. Its goal is to create a decentralized platform for entertainment, bringing together everything from games to casinos, videos, or the possibility of live streaming concerts.

In addition, it increases the security of the platform by eliminating certain vulnerabilities in the Ethereum platform's contracts.

Main advantages of TRON

TRON has a team dedicated 100% to the project and has already achieved alliances with different companies such as Peiwo (a very popular voice streaming application in China owned by Justin Sun), game.com or oBike.

Main disadvantages of TRON

This cryptocurrency focuses on a very limited field, so its evolution is also limited. The criticisms about TRON are mainly about the incredibly high number of cryptocurrencies in circulation. This allows it, even with a very low price, to be one of the biggest cryptocurrencies today, which many consider unreal.

Advantages and disadvantages of Stellar Lumens

Stellar is another cryptocurrency inspired by bitcoin, this time focused on low fees. Its platform is known as Stellar and its currency is called Lumens, which is why it is commonly referred to as Stellar Lumens.

Stellar was created in 2014 with a certain beneficial interest, as its creators indicate on their website:

"Our mission is to connect people at a very low cost of financial services, in order to fight poverty and maximize individual potential"

Main advantages of Stellar

Although Stellar certainly has a fast network, its most noteworthy feature is its low fees, close to zero.

In addition, the solidarity-focused approach of the cryptocurrency has been a clear benefit for Stellar, helping to secure agreements with major companies such as IBM or Deloitte.

Main disadvantages of Stellar

The big problem with Stellar is the strong competition, especially from Ripple. In addition, it receives certain accusations of lack of decentralization, since its creators own more than 80% of the Lumens.

Advantages and disadvantages of Cardano

Cardano was launched in September 2017 and was backed by the company Input Output Hong Kong (IOHK). It was created as a platform similar to Ethereum, allowing the use of smart contracts and applications, but using a "Proof of Stake" confirmation protocol known as Ouroboros.

Main advantages of Stellar

The benefits of Cardano lie in the use of this confirmation protocol that eliminates miners and allows for larger and faster transactions.

In addition, Cardano has a multi-layer architecture that is one of the main advantages of the cryptocurrency. For example, its own blockchain is hosted in the Cardano Settlement Layer (CSL) layer, and smart contracts and applications run on the Cardano Computation Layer (CCL) layer. This architecture allows for more efficient, secure, and fast updates to the cryptocurrency.

Main disadvantages of Stellar

Cardano is in a very early stage of development and is still pending receipt of functionalities. The viability of this project is still pending its completion.

Advantages and disadvantages of Monero

Monero is an open-source cryptocurrency created in April 2014, which prioritizes privacy and decentralization. Its goal is based on the anonymity of its users, hiding the identity of senders and receivers and the amounts of transactions. In addition, it seeks a more egalitarian and less competitive mining process.

Main Advantages of Monero

The main benefit of Monero is, of course, its anonymity. Users of this cryptocurrency ensure that their financial information is fully protected.

Main disadvantages of Monero

The drawbacks of Monero are also a result of its anonymity. Due to the strong encryption of the network, many dark web markets and hackers have adopted it as a currency. This has given this cryptocurrency a very bad reputation and compromised the viability of the project.

If you want to learn more about the advantages and disadvantages of virtual money, we recommend reading the following article, where we explain the benefits of blockchain, the technology that powers cryptocurrencies. Read more here.

Video of the advantages and disadvantages of cryptocurrencies

To clear up all your doubts, we present a very interesting debate about the drawbacks and benefits of cryptocurrencies with the Country Manager of BUDA, the Peruvian exchange.