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Digital Currency: Dawn of digital economy

What do you come across, as soon as the term “Digital Currency” pops out? We are sure you think about something intangible, a paperless mode of transaction, isn’t that so? But, have you ever wondered, what exactly is a digital currency? How does it operate? How has it been transforming the world economy? In this context, we’ll focus on these parameters; and by the end of this article, you’ll be knowing all about the digital currencies!

The journey of the digital currency began in the year 2009 when Mr. Satoshi Nakamoto brought up the very first digital asset called “Bitcoin”. To bring liquidity in the transaction process, after that, a large number of digital currencies popped in the market, and by today there are 1,000 digital forms of money with a consolidated market capitalization of over 400 billion dollars. All of these digital forms of payment works on the principle of Blockchain technology, which has been enhancing all major sectors. So, before we head off to understand the working of the digital currency; we’ll study about the technology behind this form of digital currency, called blockchain.

Potential of Blockchain technology

Blockchain is a decentralized, secure and encrypted form of database that records data like transaction procedures, contract details, etc. in such a way that the data stored in the blocks are non-changeable and securely transferable without the need of any third party. On account of digital asset, exchanges are put into “block,” which sequentially forms a chain. We utilize the appropriate system of PCs to approve transactions and prevent altering and duplication in it. By offering a protected and effective technique for trading and supporting data, blockchain could tremendously affect the worldwide economy.

Working of Digital Currency

There are a large number of digital currencies in the market, yet Bitcoin’s 2009 creation was a riddle. A procedure which we term as mining creates Bitcoins; in which members in the system are granted bitcoins as a reward for tackling complex computational issues. Each Bitcoin has both a private and an open key that empowers secure exchanging, selling and spending. As a method for trade, bitcoin offers a few points of interest. This includes improved protection, freedom from nation explicit financial arrangements, and significant cost reduction for exchanges.

Roadblocks to its adaptation

Instability

Instability is a noteworthy hindrance to bitcoin’s utilization as cash. The value changes so quickly, it becomes difficult to decide whether one should buy it or sell it. For instance, Bitcoin which was $1,126.76 on 4th January 2018, dropped down to $883 on 6th January 2018, which means a fall of about 21.6 % in the price was observed within two days.

Illiquidity

Because of fluctuation in the price of digital currencies, people do not find it as a reliable way of transacting. Since, the buyers cannot use it to buy something, fearing that the price may rise and so is the seller fears that the price may fall after the exchange. Further, Bitcoin has a limited breaking point — just 21 million bitcoins can ever be produced — and the mining procedure turns out to be increasingly troublesome and less compensating over the long haul. It’s anticipated that 94% of all bitcoins will have been mined by 2024; the absolute last bitcoin is required to extract at some point in the year 2140.

Uncertainty

There are questions about bitcoin’s long-term viability, related to internal, philosophical disagreements within the bitcoin community over the digital currency’s future. As bitcoin has grown in popularity and risen in price, transaction processing times and fees have also increased. Some bitcoin developers feel that high costs and slower transactions are stabilizing forces that give bitcoin more credibility as a store of value. Others, however, don’t see things that way and have left the community to create their own Bitcoin Cash. This new, entirely separate digital currency allows transactions at lower fees and is faster in comparison to Bitcoin.

The emergence of Bitcoin Cash has not resolved the debate, however, and there may potentially further split as bitcoin continues to evolve. Also, there’s no consumer protection for stored bitcoins. Losing one’s private key means losing access to bitcoin assets, and there’s no way to recover it. For instance, famous tech writer Campbell Simpson purchased 1,400 bitcoins for $25 in 2010 and kept them stored offline, on a hard drive. He later disposed of the hard drive without backing up the data on it.9 Without the hard drive, those coins — and the value they represent — are lost forever. As of December 2017, those bitcoins would be worth over $23 million.

Impact of digital currency in various sectors:

Transforming the Financial Sector

The growth of peer-to-peer transactions without a middleman could create significant challenges for consumers, payment processors, financial institutions, and markets. Companies such as Visa and MasterCard, for instance, have only just begun to consider how digital currencies might fit their business models. Both have invested heavily in blockchain technology, in the hopes of leveraging the technology’s speed and efficiency.

Accelerating Digital Innovation

Some of the world’s technology leaders are struggling to keep up with the accelerated pace of digital currency innovation. This could portend a near-term rise in M&A activity as tech giants acquire early innovators to leverage emerging technology platforms rapidly. Besides, investment opportunities may lie in the pooling of resources to mine the remaining bitcoins and improve the network’s processing power. Or unanticipated applications may emerge — e.g., MIT’s Digital Currency Initiative, which is exploring the use of bitcoin’s underlying technology for business, civic and social benefits.

Influencing Investment Strategies

The reduction or transformation of barriers to business, trade and global economic growth may affect not only currency investing but also investment opportunities worldwide. Impacts on the financial and technology sectors represent probably the nearest term — but not the only — opportunities. In the end, the effects of blockchain technology may be felt throughout the global economy. Be that as it may, these points of interest are more than counterbalanced by the dangers exhibited by bitcoin’s instability and illiquidity, which make it a poor store of significant worth, just as the uncertainty encompassing its long-haul suitability.

Bitcoin as a Speculative Investment

Something says about bitcoin’s potential as immediate, theoretical speculation. In our view, the dangers again exceed the conceivable favorable circumstances. What’s more, maybe above all, a portion of bitcoin’s possible favorable conditions is now past their prime. The fast speeding up of bitcoin’s cost has driven a few, including Warren Buffet, to ponder whether we see a bubble.

Notwithstanding considering Bitcoin’s colossal unpredictability, with no administration expert behind Bitcoin to correct expenses — in this manner making holds and resulting esteem — the danger of making the off-base call is high. Should Bitcoin’s unpredictability settle, and its cost become progressively unsurprising, the cash’s pre-set point of confinement for new coinage creation would, in any case, make substantial worries about its long-haul esteem. Moreover, as bitcoin rises out of the square corners of the web and discovers its direction onto more secure, increasingly conventional trades, its respect may experience descending weight from dealers who are presently ready to wager against it. By dispensing with value-based and outside trade costs, blockchain could even the odds for littler customer organizations, upgrading their intensity. So also, it could lessen or weaken the impact of significant economies by degrading their cash.

Conclusion

Digital currencies remain in their infancy, and interested investors should proceed with caution, assuming a broad, long-term view. The best way to capitalize on technology adoption acceleration, like the internet, social media, and other disruptive technology is through private equity. Bitcoin has proven that digital currency is possible in some form, however unpredictable its future may be. As with many innovations, a more mature kind of disruptive technology may ultimately surpass its original intent.

There’s additionally no telling how guideline may affect bitcoin and other advanced monetary standards later on. The BitLicense presentation in New York on June 2015 presented guidelines for bitcoin trades; upwards of 10 digital currency new businesses stopped working together in the state. As of January 2017, just three Bit Licenses had been granted. In September 2017, China reported that it was prohibiting all bitcoin trades from working in the country. Even though bitcoin’s job as cash may be achievable; the unpredictability, illiquidity, and vulnerability make it risky for traders to believe in the potential of this new money. However, with time, it may see an uprise, things may become better!

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