Every time I swipe left on my smartphone’s home screen to check the latest news, the first one is always about a cryptocurrency. How they are surging or how they are crashing etc.etc.
More and more people are showing interest in Bitcoin, as an alternative to traditional methods of investment. Is it really? You may argue that when shares were sold to public, even that time skeptical eyebrows were raised stating it is not a 'conventional' way of investing, but it essentially had a piece of ownership of the company, a say in major decisions. Is any crypto the same? Do I own some part of something which yields me profit year after year? If it fails to do so can I fight for my hard earned money legally?
Many people are calling it a Bitcoin Bubble, just like the DotCom bubble. Many people are comparing sky-high price of Bitcoin with Dutch Tulip Bulb Mania. And maybe they are not that wrong!
Price of any commodity depends mainly on supply and demand of that commodity. When we know there are 21 million Bitcoins available and mining a new Bitcoin is becoming increasingly hard, the prices are likely to soar. But beyond $10000?
Let’s take a jog down the memory lane. When we started learning Economics, we came across a term called 'The bandwagon effect’. It is the tendency to follow the actions or beliefs of others regardless of the underlying evidence. Many people across Globe are investing in Bitcoins just because their friends, neighbors or colleagues did so. Many do not know the technology behind Bitcoins. And then there are some who are going after other cryptocurrencies (Ethereum, Ripple, Monero and Doge) with the same principle or just because they are affordable and have substantial market capitalization.
While majority are taking this bet, there are others, who outright deny the value of Bitcoins, like Warren Buffett. When he says we are at the top of the bubble, that cryptocurrencies have no future, there is ought to be some knowledge behind his statements. He has had his mettle tested in the worst times and is still standing tall.
They say that cryptocurrencies will rule the future, they will simplify the payment system. With more than 1000 cryptocurrencies, I can’t see how! For every actual or virtual thing out there we’ll have a designated currency.
If we talk about Bitcoin only, there are 21 million coins. The population of earth is 7.6 billion. Even if we accept cryptocurrencies in future, there will be uneven distribution of coins and a majority of population will have to rely on lesser value coins. The power will remain with a large group who actually own a part of Bitcoin if not one whole Bitcoin.
One of the goals of cryptos is to break down the concept of fiat, so that the world becomes one marketplace with one Currency, literally.
Many coins cannot be purchased outright against any fiat currency. You first have to have either Bitcoin or Ethereum and exchange it for the coin you want. And the coins should not be lying around on the exchange, so you should either get a hardware wallet,a paper wallet or an online wallet. So you have to tweak your way around a little. This technology will surely be easier in future but if we are stocking up for future, we don’t need a crooked route to the storage. So the laymen either should take risk by keeping their coins in exchanges (chances of getting hacked and robbed of savings) or ask for some professional help (chances of getting hacked and robbed of savings! Wait! I think I’ve said that already!!). Many major exchanges were hacked and many people lost hundreds and thousands of dollors. No regulators, no frame of law and no paperwork resulted in permanent loss of savings. Yes, loss of savings. Because people kept aside a portion of their income and bought cryptocurrencies.
When 100 people were buying cryptos another 100 joined in and the group is getting larger everyday. People are looking at it as an alternate investment option. They have started placing cryptos alongside of shares, mutual funds and gold. Many people who don't understand the technology are joining with "me too" attitude so that they are not left behind when the ride begins. New ICOs are launched almost every day only because the demand is increasing for cryptocurrencies. People want to make quick money, and this is the best bet right now.
Why many Governments are warning against trading in cryptocurrencies is a different aspect altogether. The trades are untraceable. You simply cannot trace influx of money albeit to a certain extent. You know the user has bought coins but later if they opt for a more private untraceable coin( like Monero) the trail is lost. Government monitors financial transactions for mainly two reasons, to assess what kind of transactions took place and secondly to know involved parties. Then if one party is denied their rights, Government can do the justice in accordance with the laws and regulations of the country. Imagine that power completely gone. The transactions become vague and there is no justice. It has happened when exchanges were robbed. These coins could also be used for illegal trade. For example, if A purchases Monero, keeps it till the price goes up and sells it against a fiat currency. The buyer B can send it to C and so on till it is actually exchanged for some banned items. The whole transactions could be traced only till the point where A exhausted his role as holder of Monero. After that it is as good as flying without a compass. Hence, the two main areas of concern are breached readily.
South Korean Government said it might permanently ban arbitrage of cryptocurrencies. South Korea is said to be one of the biggest markets for the crypto. The sudden news is resulting in falling prices of Bitcoins and other major cryptocurrencies. Why did the S. Korean Govt took such extreme step? Or why would ANY Govt may follow suit? Because there is essentially a larger risk to the economic status of a country. If people, rather than going the traditional way, start putting all of their savings in crypto market and IF the markets crash, a huge chunk of money will be lost. Apparently people who lost the money won't have anything else with which they can get it back. They will have less money at their disposal and then there will be an even greater risk of inflation.
The main quality of the world of blockchain is decentralization. Absolute absense of governance. So wven if you do have issues you either go to the coin community or you don't and sit with the loss.
They seem to have a lot of potential. And they will revolutionize the transfer of data or money. But there has to be a lot of work done before that. The need for regulators in cryptos will arise. If you need easy transfer of ownership and if you say that it is for the betterment of future, enables unalterable records for each transaction, and if you say it is in the public interest, then you need to assure comman man that it is safe to use and for that there will be a need for a governing body.
Thank you for reading! How about you buy me a coffee and motivate me to write more? I am working on my writing skills so constructive criticism is always welcome.Take care dear
