Blockchains, sidechains, mining – terminologies in the clandestine world of cryptocurrency keep piling up by minutes. Though it sounds unreasonable to introduce new financial terms in an already intricate world of finance, cryptocurrencies provide a much-needed solution to one of the biggest annoyances in today’s money market – security of transaction in a digital world. Cryptocurrency is really a defining and disruptive innovation in the fast-moving world of fin-tech, a pertinent response to the necessity for a secure medium of exchange in the days of virtual transaction. In a period when deals are simply just digits and numbers, cryptocurrency proposes to do 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 property instead of 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 known as mining on a peer’s machine. Successful miners receive coins too in appreciation of their own 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 the same user. The blockchain can be thought of as the cashier’s register. Coins are secured behind a password-protected digital wallet representing the user.
Way to obtain coins in the digital currency world is pre-decided, free from manipulation, by any individual, organizations, government entities and finance 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, when compared to traditional banking system. It is also largely irreversible by design, further bolstering the thought of anonymity and eliminating any more chances of tracing the amount of money back again to its original owner. Unfortunately, the salient features – speed, security, and anonymity – also have made crypto-coins the mode of transaction for numerous illegal trades.
Just like the money market in the real world, currency rates fluctuate in the digital coin ecosystem. Owing to the finite level of coins, as demand for currency increases, coins inflate in value. Bitcoin is the largest and most successful cryptocurrency up to now, with market cap of $15.3 Billion, capturing 37.6% of the market 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 Ethereum, NPCcoin, Ripple, EOS, Litecoin and MintChip.
Due to hard-coded limits on the supply, cryptocurrencies are considered to follow exactly 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 observed. Consequently, the investment in virtual currencies is more speculation right now than an everyday money market.
In the wake of industrial revolution, this digital currency is an indispensable part of technological disruption. From the point of an informal observer, this rise may look exciting, threatening and mysterious all at once. Although some economist remain skeptical, others view 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 fresh 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 give spotlight to other cryptocurrencies. But this will not signal any crash of the cryptocurrency itself. While some financial advisors emphasis over governments’ role in cracking down the clandestine world to regulate the central governance mechanism, others insist upon continuing the current free-flow. The more popular cryptocurrencies are, the more scrutiny and regulation they attract – a common paradox that bedevils the digital note and erodes the principal objective of its existence. In any event, having less intermediaries and oversight is making it remarkably appealing to the investors and causing daily commerce to improve 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 be dominated by crypto supply chain which will offer less friction and more economic value between technologically adept buyers and sellers.
If cryptocurrency aspires to become an essential part of the existing economic climate, 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 offer 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 they are must-haves for the digital system, it will require few more years to comprehend whether cryptocurrency can compete with real life currency in full swing. Although it will probably happen, cryptocurrency’s success (or lack thereof) of tackling the challenges will determine the fortune of the monetary system in the days ahead.