Cryptocurrency — Bane or Boon?
Backstory
During my eleventh grade, I explored the various types of economies. This led to me also reading about stock markets. These 2 topics got me pushing my imagination to the limit and thinking of a place where one could trade money digitally without any regulation or hassle at all. That was when I was nudged towards the world of cryptocurrency by my mentor, Mr. Saurabh Nanda. As I researched crypto, I couldn’t let go. It introduced me to blockchain technology and remains such a fascinating topic for me, increasingly so due to its significance in the modern era.
Current Misconceptions about Cryptocurrency:
In this world of flying rumours and racing gossip, a lot many people have a plethora of ideas about cryptocurrency. Most people consider cryptocurrency to be simply a form of digital cash. They see only one use for it — trading. But crypto is so much more.
What I Saw in Crypto
In the very beginning, I was confused yet curious about this new field. I don’t know how but I was able to catch on to the amount of foolishness associated with it. And at the same time, I found that crypto actually has some serious value in itself. I came to the conclusion that these crypto assets can cause great harm when placed in misguided hands but also open up a number of opportunities in the real world, with great emphasis on the banking sector.
Not Just a Wonder
However, cryptocurrency is not just something wonderful. It too has its own drawbacks. All cryptocurrencies are created by a process called mining, which requires a powerful computer and a mediocre brain. So, basically, every crypto coin ever brought into existence is merely something made up by someone with a laptop, without any basis for its value. That’s where the problem lies. Every single one of us is so taken by this unknown object that we don’t pause to think. We ignorantly trust this new technology without actually understanding it.
A Billion-Dollar Fiasco
Elon Musk’s electric car-making company once invested $1.5 billion into Bitcoin at the beginning of 2021. That’s right $1.5 billion dollars! However, they could not gain something from this investment. Rather, they had to face a total loss of $140 million. This just shows how risky cryptocurrency can be.
Why has it Become so Popular, Despite the Risk?
The reason for crypto’s popularity is as follows:
- There is zero dependence on banks
- No central authority is involved, which means zero interference by the government
- Payments can be made from anywhere in the world with the right technology
- Most importantly all transactions remain secure thanks to the highest level of encryption
What is Required to Complete Crypto Transactions?
A wallet is used to store our physical money like cash, coins and even our debit or credit cards. Similarly, a digital wallet is also used to store cryptocurrencies. However, that is not so accurate. This wallet doesn’t actually store your crypto coins but holds the address for these funds. It only provides you with the tools you need to access your crypto coins. These tools are primarily a pair of keys (like the keys of a car) that allow you to complete safe transactions. There is a public key and a private key.
The other requirement for a trade is a cryptocurrency exchange. If cryptocurrency is a car, then an exchange is the showroom. Now, when someone says cryptocurrency, what comes to your mind? Probably Bitcoin or Dogecoin? These are popular currencies and are available on many different exchanges. However, the lesser-known currencies are only available on some specific exchanges. On an exchange, you can buy and sell crypto coins in pretty much the same manner as stocks. And there lies the appeal of being available on exchanges.
Change in Values of Crypto Coins
The value of a cryptocurrency depends on its popularity. The more popular the coin, the greater its value. Imagine that all of a sudden, many people in a market start demanding analogue watches rather than digital ones. That would lead to more firms selling more analogue watches as well as an increase in their price. Similarly, an increase in popularity of a cryptocurrency leads to an increase in its value and it starts being listed on more exchanges, to be made more accessible to investors. This is based on simple demand and supply.
For example: Bitcoin. In late 2015, its value was almost $450. It then soared to almost $69,000 in November 2021. And suddenly in December, it was down to barely $50,000. That’s how unpredictable crypto is. Currently, Bitcoin is trading at around $30,000.
Values of various coins do keep on changing. But it is not always the case that a crypto coin will be successful. There is no guarantee of a coin gaining significant value once it is created. Between 2013 and 2022, over 2300 cryptocurrencies died.
A Light through the Darkness
In today’s age cryptocurrency has become so popular because of its increasing utility. If crypto can work successfully in day-to-day life with rapid transactions and low fees, it will be used everywhere like obtaining loans, payments to businesses, etc. This will only increase its demand. Some independent retailers are already starting to accept it as payment. I myself am developing a theory where a person’s cryptocurrency assets can be leveraged to obtain credit cards. It is similar to mortgaging your house for a loan. Snoop Dogg. Even he tried to experiment with Bitcoin way back in 2013. The American rapper started to accept payments for his album in Bitcoin. However, the idea was not successful at that time due to less awareness about crypto. But now it certainly seems an exceedingly useful application apart from merely trading. Already, cryptocurrencies are being used to purchase non-fungible tokens (NFTs) as well. They have become an attractive investment because of their skyrocketing value creating millionaires out of the blue.
SMC Youth
I am honoured to be a part of the Inaugural cohort of SCM Youth 2023.
Check out my talk here:
Connect with me:
LinkedIn: https://www.linkedin.com/in/vihaan-bakshi-83a2a7260/
Instagram: https://www.instagram.com/vihaan.bakshi/
