What Are the Benefits of Digital Currency?

Benefits of Various Digital Currency Types
By 
Coin Cloud Team
, published on 
January 5, 2022
What Are the Benefits of Digital Currency?

When it comes to digital currency, there’s more than just money involved. Given the many use cases, you may wonder, “What are the benefits of digital currency?”

From cryptocurrency to smart contract platforms and decentralized finance (DeFi) to stablecoins, we’re going to cover the benefits of various digital currency types to give you the answer to the burning question above. 

So, we will break down the use cases of digital currencies and build it all back up so it paints a complete picture of their advantages. 

Let’s get straight to it! 

Cryptocurrency 

There are tens of thousands of cryptocurrencies to choose from. Unlike fiat money, cryptocurrency can’t be touched or created using a printing machine. Cryptocurrency is decentralized. So, to be able to add coins to the blockchain, or otherwise mint or create them, there’s a process to maintain security. 

Cryptocurrency mining adds more crypto to the blockchain through validation of transactions. This works through a Proof-of-Work (PoW) consensus mechanism, which allows for transactions to be validated on a network. Bitcoin was the first crypto to do this. 

PoW requires a lot of electricity to handle. And it uses a lot of computing power because multiple computers within the network are all competing to solve the same algorithm. The fastest computer (or miner) to do so wins cryptocurrency in exchange for solving the “puzzle.” 

The blockchain ledger is distributed across a bunch of computers, also known as nodes or miners. Using the decentralized mechanism, the whole network has to agree to a transaction’s details before a new block is added (and more crypto is created). 

This is what makes the blockchain so secure. There’s no single individual or entity in control of overseeing transactions. Instead, the ledger is updated digitally after one computer solves the equation and many other computers validate that solution, locking it in. 

Some examples of cryptocurrency that run on PoW mechanisms include Bitcoin, Ethereum 1.0, Dogecoin, Litecoin, and Bitcoin Cash, to name a few. 

Benefits of PoW Cryptocurrency: 

  • Very high level of security 
  • Decentralized way to verify transactions 
  • Miners get to earn crypto rewards 

Benefits of Using Cryptocurrency: 

  • Transactions are confidential 
  • Low transaction fees 
  • Cryptocurrency is borderless (which means it can be used as currency internationally without having to exchange your fiat currency for another country’s fiat currency)
  • You maintain total ownership of your assets (there’s no bank or third party that has access to your crypto) 
  • Decentralization (no third party to monitor what you’re doing. Cryptocurrency is unaffected by inflation and its value can’t be impacted by government decisions) 
  • Quick transaction speeds 

Smart Contract Platforms 

Blockchain technology isn’t just used to create cryptocurrency. It can also be used for smart contracts. In typical scenarios, contracts exist between a sender and receiver, but they can be hacked or forged. Smart contracts automate agreements and remove the need for any middleman. 

Smart contracts also can be processed more quickly, so there’s no delay in waiting for a middleman to get a contract in front of the signer and follow up. 

They are automated because they run on an “If this, then that…” type of logic coded on the blockchain. Once each action has been accomplished, the computer’s network carries out the next step automatically. 

It’s like going to Starbucks for a coffee versus clicking start on your Nespresso. 

In the first scenario, you’ll have to wait in a line, and you run the risk of receiving a drink that isn’t exactly what you ordered (plus, there’s a high chance that your name will probably be spelled wrong on the cup). If this was a contract, you’d have to restart the entire process to make it accurate.  

In the case of the Nespresso, you know exactly what you are going to receive, and once you hit a button, the entire process is automated and quick because the machine has replaced the person. 

For example, you can use smart contracts to:

  • Register a vehicle
  • Release funds to a party
  • Issue a ticket 
  • Send notifications 

Transactions are totally secured and cannot be modified. Plus, only the parties involved can access the outcome. 

Benefits of Smart Contracts 

  • Speed (contracts are executed immediately) 
  • Security (records are encrypted on the blockchain so any sensitive information within the contract is protected) 
  • Removal of manual errors (refer back to the mistake of misspelling a name) 
  • Trust and transparency (with no third party involved, participants don’t have to worry if anything has been changed or there’s any ulterior motives involved) 
  • Cost savings (because the middleman has been removed) 

Decentralized Finance (DeFi) 

Blockchain technology also makes it possible for decentralized finance (DeFi) projects to exist. DeFi is a new way to recreate traditional financial systems using cryptocurrency. 

Instead of having to deal with banks and exchanges, cryptocurrency can be used on the blockchain to cover some of the same services. Most DeFi projects exist on Ethereum’s blockchain. 

For example, let’s take a look at one of the simplest use cases of DeFi, which is lending. Say you need a loan, but you have bad credit. A traditional bank either wouldn’t give you a chance, or they’d charge you crazy high interest rates to get your hands on some money. 

DeFi lending allows owners of cryptocurrency to lend their stash to others and earn interest on it. There are many advantages to be had here. 

Benefits of DeFi 

  • More attractive interest rates (compared to banks or traditional lending institutions) 
  • Low barrier to entry for borrowing (typically, the only requirement is providing collateral with other crypto assets you hold) 
  • Lower transaction rates 
  • Opportunity to diversify investments 

Stablecoins 

For anyone who feels a little bit wary about digital currency’s high fluctuating values, stablecoins might help to ease the worries. 

Stablecoins are cryptocurrencies whose value is tied to an existing asset, such as a fiat currency like the US dollar, or a natural resource like gold. 

Stablecoins are an attempt to overcome price volatility. To do this, stablecoins will be backed by a reserve of the asset it’s tied to. The reserves are like collateral to the stablecoin, kind of like the old gold standard. Some examples of stablecoins include USD Coin, TrueUSD, Tether, and Dai. 

It’s worth pointing out that CBDCs, or Central Bank Digital Currencies, are basically a centralized version of stablecoins. Many governments worldwide are looking into implementing these as an additional (government-controlled) option to crypto. 

Benefits of Stablecoins 

  • Made to withstand volatility in pricing of cryptocurrency 
  • Decentralized form of currency 
  • Autonomy (no single agency or entity controls the crypto) 
  • Faster transfer of money 
  • Financial data privacy 
  • Can be used for long-term investments 

A Whole New World: Blockchain and Cryptocurrency

When it comes to digital currency, most people will probably think of Bitcoin first because it’s the most widely talked about and has the highest market capitalization. But, as you can see from this short list that has helped to answer, “What are the benefits of digital currency?” there’s a lot to be gained from the blockchain technology behind digital currencies. 

At Coin Cloud, we offer our customers the option to buy, sell, monitor, and trade cryptocurrency (including stablecoins) with cash, a debit card, or a credit card. If you’re looking to trade your cash to buy some digital currency, you can find your nearest Coin Cloud Digital Currency Machine (DCM) here to get started. 

Disclaimer: The information and views supplied on the Coin Cloud blog are for educational and entertainment purposes only. We are not financial advisors, so please do your research and consult with a trusted financial specialist before investing your money.

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