Crypto- Fad or a possible future?
An investment that has made some people millionaires overnight, with a nexus of elite supporters and global relevance seems lucrative, isn’t it? Now imagine the same investment being so volatile that it loses its value abruptly or gets banned in your country, does that cause a dilemma?
If your answer is Yes, you have entered the domain of Cryptocurrency, where investors and the masses are anticipating its relevance in the future ask questions like:
- What are the advantages and disadvantages of Cryptocurrency?
- How is cryptocurrency audited or does it have some real legitimacy?
- Why should people invest in crypto? How volatile is it with its risk factors?
- How will cryptocurrency affect the present global economy?
And finally the most jarring and relevant of all
- Is crypto, a fad, scam or the future of the global economy?
What is cryptocurrency?
Crypto or cryptocurrency is a virtual decentralized currency secured by cryptography that employs blockchain technology for running through the transactions with the aid of global ledgers which uses an advanced encryption technology known as cryptography, which makes the transactions secure. It is designed in a way where individual ownership records of exchange are stored in computerized databases and due to not being issued by the government agencies of any country, cryptocurrency is shielded from any involvement and manipulation by governmental regulatory bodies. However in 2018 RBI imposed a ban on all virtual currencies like Bitcoins, which was done to ensure the safety of the country’s financial system from private currencies which was deemed illegal by the government, nevertheless on March 4 2020, The supreme court of India lifted the ban on trading cryptocurrency in India.
How cryptocurrency can be the avant-garde mode of the economy?
The decentralization and self-governed nature of the currency
Decentralization means that the currency is free from the monopoly of governmental control like in terms of fiat currency. Cryptocurrency is controlled by independent developers, private organizations and individuals and agencies that mine them, making it a currency that defies the restrictions and boundaries of countries.
The cryptocurrency happens to be self-governed and maintained by miners and developers on their hardware. The transaction records and integrity of the currency is maintained due to the incentives the miners get and in turn keep the records decentralized.
Security and privacy
Since the blockchain ledger is based on solving difficult mathematical equations it is hard to decode, as manipulating a transaction would require changes being made on all the global ledgers which are both cumbersome and not attainable. This makes cryptocurrency more secure than electronic transactions.
Cryptocurrencies use pseudonyms, hide users’ real wallet balance and address and mixes multiple transactions to elude a chain analysis leading to any user. The accounts and stored data are not attached to the profile of the user.
Would protect from economic inflation
Inflation is defined as the decline of purchasing power of a given currency over time. The world has seen a great deal of inflation post wars and economic crises, however, due to the fixed amount of cryptocurrencies like Bitcoin, the value increases with an increase in demand in the market which prevents inflation in the long run. There are 21 million Bitcoins released worldwide whereas fiat currency can be printed by the nationalized banks anytime.
Cost-effective and a faster way to exchange and transfer funds
The cost-effectiveness is derived from the negligible amount of transaction fees that need to be paid, due to the lack of third party payment gateways, the verification of transactions across borders is practically free in terms of cryptocurrencies. The speed of transaction is at a lightning speed due to fewer verification hurdles pan international and domestic exchanges. By trading in cryptocurrency currency like the US Dollar, Indian Rupees or European Euro can be converted into bitcoin, ethereum,litecoin etc. at minimal transaction fees.
How cryptocurrency can be an empty vessel with more noise?
Not completely decentralized with scalability issues
Although they are decentralized in terms of being free from the shackles of governmental agencies, cryptocurrency is still under large stakeholders, organizations and creators. They can meddle with the coins for massive changes in the price. Therefore making cryptocurrency volatile with Bitcoin’s rate of volatility being as high as 76.49%. The biggest concern with cryptocurrencies is the problem of scaling, in spite of the increased use of digital coins it is still dwarfed by the number of transactions processed by payment giants like VISA. There are several solutions like lightning networks, sharding and staking that are being incorporated to overcome the scalability issue.
Cybersecurity and issues with data loss
The exchanges of the cryptocurrencies are not secure, since the exchanges store the wallet data of the user for a seamless operation. However, this data can be stolen by hackers who can withdraw funds from the account. We have seen Bitcoin being stolen of thousands and millions of US dollars. To prevent such hacking the developers created source codes that are untraceable and impenetrable but losing such private keys to a user’s wallet can lead them to never recover their funds. This would lead to heavy financial loss for an investor.
The volatility of price and lack of inherent value
Warren Buffet said “You can’t value bitcoin because it’s not a value-producing asset…it’s a real bubble in that sort of thing.”, the volatility of the digital coins is tied to the lack of inherent value. It cannot be kept like a tangible asset and this issue can be solved by increasing the acquisition of cryptocurrency use and a resultant decrease in the volatility.
Can be used for illegal transactions
Since the anonymity factor of cryptocurrency is higher it becomes hard for governmental agencies to track down the transaction information and the credentials of the user. This turns it into a breeding ground for the mode of exchange of money in buying drugs, trafficking etc on the dark web. Cryptocurrency can also be used to convert illicit money to hide its traceability.
The future
Hence the future of cryptocurrency has limitations such as wiping away one’s entire digital asset with a computer crash or being bugged by a hacker. It is a paradox how with the increased popularity of cryptocurrencies the governmental regulations would proportionally increase, giving away its major decentralized advantage. It is a mode of currency compared to fiat currency which is mainly made for the technologically adept. With the plethora of drawbacks and advantages, crypto-like any other innovation needs time to mature and grow until it becomes the common mode of transaction in this world economy.
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