Blockchains, sidechains, mining – terminologies in the clandestine world of cryptocurrency keep turning 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 primary annoyances in the current money market – security of transaction in a digital world. Cryptocurrency is a defining and disruptive innovation in the fast-moving world of fin-tech, a pertinent response to the need for a secure medium of exchange in the days of virtual transaction. In a time when deals are simply just digits and numbers, cryptocurrency proposes to accomplish exactly that!
In the most rudimentary type 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 instead of actual currency. Unlike everyday money, cryptocurrency models operate with out a central authority, as a decentralized digital mechanism. In a distributed cryptocurrency mechanism, the 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 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 could be regarded 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 of manipulation, by anybody, organizations, government entities and finance institutions. The cryptocurrency system is known because of its speed, as transaction activities over the digital wallets can materialize funds in just a matter of minutes, compared to the traditional banking system. It is also largely irreversible by design, further bolstering the thought of anonymity and eliminating any further chances of tracing the money back 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 real life, currency rates fluctuate in the digital coin ecosystem. Owing to the finite quantity of coins, as demand for currency increases, coins inflate in value. Bitcoin may be the largest and most successful cryptocurrency up to now, with market cap of $15.3 Billion, capturing 37.6% of the market and currently priced 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 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 observed. 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 is an indispensable section of technological disruption. From the point of a casual observer, this rise may look exciting, threatening and mysterious all at one time. Although some economist remain skeptical, others view it as a lightning revolution of monetary industry. Conservatively, the digital coins are going to displace roughly quarter of national currencies in the developed countries by 2030. It has already created a new asset class alongside the traditional global economy and a fresh set of investment vehicle should come from cryptofinance within the next years. Recently, Bitcoin may have taken a dip to give spotlight to other cryptocurrencies. But this does 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 upon continuing the current 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. Either way, having less 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 be dominated by crypto supply chain that 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 financial system, it will have to fulfill very divergent financial, regulatory and societal criteria. It will 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 should be able to compete with the real world 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 times ahead.