Blockchains, sidechains, mining – terminologies in the clandestine world of cryptocurrency keep piling up by minutes. Though it sounds unreasonable to introduce new financial terms within an already intricate world of finance, cryptocurrencies provide a much-needed solution to one of the primary annoyances in the current money market – security of transaction in an electronic world. Cryptocurrency is a defining and disruptive innovation in the fast-moving world of fin-tech, a pertinent reaction to the need for a secure medium of exchange in the times of virtual transaction. In a time when deals are merely digits and numbers, cryptocurrency proposes to accomplish exactly that!
In the most rudimentary form of the term, cryptocurrency is really a proof-of-concept for alternative virtual currency that promises secured, anonymous transactions through peer-to-peer online mesh networking. The misnomer is more of a house rather than actual currency. Unlike everyday money, cryptocurrency models operate without a central authority, as a decentralized digital mechanism. In a distributed cryptocurrency mechanism, the amount of money is issued, managed and endorsed by the collective community peer network – the continuous activity which is recognized as mining on a peer’s machine. Successful miners receive coins too in appreciation of their time and resources utilized. Once used, the transaction information is broadcasted to a blockchain in the network under a public-key, preventing each coin from being spent twice from exactly the same user. The blockchain can be regarded as the cashier’s register. Coins are secured behind a password-protected digital wallet representing an individual.
Supply of coins in the digital currency world is pre-decided, free of manipulation, by any individual, organizations, government entities and financial institutions. The cryptocurrency system is well known for its speed, as transaction activities over the digital wallets can materialize funds in just a matter of minutes, compared to the traditional banking system. Additionally it is largely irreversible by design, further bolstering the idea of anonymity and eliminating any further chances of tracing the amount of money back again to its original owner. Unfortunately, the salient features – speed, security, and anonymity – have also made crypto-coins the mode of transaction for numerous illegal trades.
Similar to the money market in real life, currency rates fluctuate in the digital coin ecosystem. Due to the finite level of coins, as demand for currency increases, coins inflate in value. Bitcoin is the largest and most successful cryptocurrency so far, with a market cap of $15.3 Billion, capturing 37.6% of the marketplace and currently coming in at $8,997.31. Bitcoin hit the currency market in December, 2017 by being traded at $19,783.21 per coin, before facing the sudden plunge in 2018. The fall is partly due to rise of alternative digital coins such as for example Ethereum, NPCcoin, Ripple, EOS, Litecoin and MintChip.
Due to hard-coded limits on their supply, cryptocurrencies are considered to check out the same principles of economics as gold – price depends upon the limited supply and the fluctuations of demand. With the constant fluctuations in the exchange rates, their sustainability still remains to be seen. Consequently, the investment in virtual currencies is more speculation at the moment than a day to day money market.
In the wake of industrial revolution, this digital currency can be an indispensable part of technological disruption. From the idea of an informal observer, this rise may look exciting, threatening and mysterious all at once. While some economist remain skeptical, others see it as a lightning revolution of monetary industry. Conservatively, the digital coins are likely to displace roughly quarter of national currencies in the developed countries by 2030. It has already created a new asset class alongside the original global economy and a new set of investment vehicle will come from cryptofinance within the next years. Recently, Bitcoin may have taken a dip to provide spotlight to other cryptocurrencies. But this will not signal any crash of the cryptocurrency itself. Although some financial advisors emphasis over governments’ role in cracking down the clandestine world to regulate the central governance mechanism, others insist on continuing the existing free-flow. The more popular cryptocurrencies are, the more scrutiny and regulation they attract – a standard paradox that bedevils the digital note and erodes the primary objective of its existence. In any event, the lack of intermediaries and oversight is rendering it remarkably attractive to the investors and causing daily commerce to change drastically. Even the International Monetary Fund (IMF) fears that cryptocurrencies will displace central banks and international banking in the near future. After 2030, regular commerce will undoubtedly be dominated by crypto supply chain that may offer less friction and much more economic value between technologically adept buyers and sellers.
If cryptocurrency aspires to become an essential part of the existing financial system, it will have to fulfill very divergent financial, regulatory and societal criteria. It’ll need to be hacker-proof, consumer friendly, and heavily safeguarded to provide its fundamental benefit to the mainstream monetary system. It should preserve user anonymity without being a channel of money laundering, tax evasion and internet fraud. As these are must-haves for the digital system, it will require few more years to grasp whether cryptocurrency can compete with real life currency in full swing. Although it is likely to happen, cryptocurrency’s success (or lack thereof) of tackling the challenges will determine the fortune of the monetary system in the days ahead.