Understanding Cryptocurrency and its Benefits

If you search for the definition of cryptocurrency online, there’s a good chance you’ll be given the explanation that it’s a form of digital or virtual currency. And while that’s certainly true, it doesn’t necessarily help to understand exactly how cryptocurrency works.

So, let’s try and paint a clearer picture. Think back to when you were younger. Do you remember going to the funfair? Do you remember having to exchange your money for tokens so that you could go on all of the different rides?

Well, that’s pretty much how cryptocurrencies operate. You take your traditional currency (take dollars, for example) and you exchange it for your chosen cryptocurrency. Once you’ve got your cryptocurrency, you can start using it in order to trade.

And when it comes to trading cryptocurrencies, that means you can use it to either buy or sell goods or services online, but it also means you can trade your actual cryptocurrencies with other traders for a higher value than what you bought them at.

Why is there so much hype around cryptocurrency?

The traditional banking system has been around forever, right? Well it certainly seems that way – and for the vast majority of us, the banking system as we know it has operated exactly the same for our entire lives.

In fact, there’s been relatively little change in how the banking system has operated since the world’s very first bank was introduced in Siena, Italy, way back in 1472.

For six centuries, the world’s banking systems have grown and operated pretty much unchallenged. We all follow the rules that have been put in place by our world governments and the different banking institutions that operate worldwide.

Until cryptocurrencies burst onto the scenes, that is.

With the introduction of cryptocurrency came major global disruption to one of the most well-established institutions in human history. And thanks to cryptocurrency, the individual was given total control and financial freedom for the very first time.

What are the main benefits of cryptocurrencies?

There are lots of advantages to using cryptocurrencies. But here’s my personal top five list of cryptocurrency benefits:

1)  You’re in control

As I mentioned above, one of the most significant benefits of cryptocurrencies is that they put people in charge of their own finances. Cryptocurrencies took the power and control away from centralised powers like governments and banks and put it in the hands of the individual.

No longer would a person require their bank in order to make transactions – because they could do it all by themselves.

Thanks to the peer-to-peer principles that underpin cryptocurrency technology, there’s no central authority like a bank or government calling the shots over your finances. In other words, you’re the one calling the shots.

2)  More anonymity, confidentiality and security

In the traditional banking system, all of your transactions are linked directly to you. Our banking and financial institutions seem to know every little personal detail about us and often, they share many of those details with third parties.

But not with cryptocurrency. You see, when you make a transaction using cryptocurrency, you only need to share the information that’s needed to complete the transaction. And that means there’s a much lower risk of you falling victim to identity theft or fraud.

3)  It’s quicker and cheaper to send funds worldwide

If you’ve ever requested a wire transfer through your bank, you’ll know just how painstaking the process can be. Especially if you’re sending money overseas!

You see, not only can it take several business days (or over a week in some cases) for the funds to appear in the account of your intended recipient, but the price you pay to make a domestic or international wire transfer can also be pretty steep.

There’s a whole host of reasons why wire transfers should be a thing of the past, so let’s take a look at a few of them:

Banks rely on old fashioned systems

That’s right – today’s banks are using systems that are wildly outdated. Take the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system as an example. Many of today’s banks use SWIFT to make international money transfers. The problem here is that SWIFT was invented back in 1973, so it’s well past its sell by date in 2021.

And while many banks are connected by the SWIFT network, it’s by no means all of them. And if your bank uses a different system for wire transfers than that of your intended recipient’s bank, then they’ll have to rely on a number of other banks to act as intermediaries in getting the funds to their intended destination.

The number of banks acting as middlemen could be one, two, three – or even as many as five. Every bank that’s involved in completing your wire transfer will charge you a fee – and that cost can soon add up!

Internal bank reviews cause delays

Many banks still insist on carrying out an internal review of all international wire transfer requests and will often need to contact you to verify the request before it can go ahead. All of this adds to the length of time it can take for the wire transfer to complete and for the funds to be accessible by the recipient.

There are so many hidden fees

Sending funds domestically and internationally can be extremely costly. Apart from having to pay your own bank’s standard wire transfer fee, you might also have to pay a whole host of other unexpected fees, such as:

  • Handling fees -Banks always charge handling fees. And the more banks that are involved in completing your wire transfer, the more it’s going to cost
  • Receiver fees -It’s not at all uncommon for a bank receiving a wire transfer to charge a receiver fee. The receiver fee might also be referred to as a handling fee or an inward remittance fee – but irrespective of what it’s called, it can often be a hefty amount that’s not disclosed when you make the initial wire transfer
  • Foreign Exchange Commission fees -If you’re making an international wire transfer, the amount you transfer will always take a hit due to foreign exchange rates
  • Payment method fees -If you opt to pay for a wire transfer with your credit card, it’s highly likely that you’ll incur additional charges of anywhere up to 5% more.

Daily wire transfer limits often apply

Many of today’s banks will either require you to set a daily transfer limit, or they may even set one for you. If you need to transfer more than your daily limit, you’ll either have to contact your bank to authorise the transaction or alternatively, you’ll be forced send the funds as two or more separate wire transfers over a number of days.

International wire transfers can be risky

When it comes to sending funds overseas, security can be a real concern because international wire transfers attract the attention of scammers. If you do fall victim to a scam, the chances of retrieving your money can be very low, especially when it’s an international wire transfer.

You might have to explain the reason for your wire transfer

As part of their efforts to tackle wire transfer scams, many banks may insist that you provide a ‘purpose of payment’ explanation for wire transfers to specific countries. In other words, you’ll be expected to explain to your bank what the intended purpose of your wire transfer is. That reason might also be shared with the bank of your intended recipient.

With cryptocurrencies, the process of sending funds overseas is super easy. You don’t have to experience any of the fuss associated with traditional wire transfers. You pay one simple transaction fee and once the payment is verified, the funds will be immediately available to your intended recipient.

4)  It’s accessible to pretty much everyone

As long as you have access to the internet, a smart phone or a computer, then you can go ahead and trade with cryptocurrencies. This is particularly beneficial for anyone living in what we call “unbanked” countries or societies.

In other words, cryptocurrency is even accessible to people who don’t already have ready access to the traditional banking systems or payment methods that many of us have become used to.

5)  It’s easy!

Let’s face it – banking can be a hassle at times. From the paperwork associated with opening a new account, to the payment of monthly account fees, to scheduled maintenance outages preventing you from using your online banking services, sometimes it can be a bit of a faff.

Well not with cryptocurrency. As long as you have access to your crypto wallet and the relevant mobile or desktop crypto app, then sending and receiving your chosen currency is pretty much a doddle!

Thanks to the peer-to-peer nature of cryptocurrencies, every transaction you make happens directly between you and the receiver, so the whole process is far simpler and much slicker overall.

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