Blockchains, sidechains, mining – terminology in the secret world of cryptocurrencies piles up by the minute. While it sounds unreasonable to introduce new financial terms into the already intricate world of finance, cryptocurrencies offer a much-needed solution to one of the biggest disruptions in today’s money market – transaction security in the digital world. Cryptocurrency is a defining and disruptive innovation in the fast-paced world of fin-tech, a relevant response to the need for a secure medium of exchange in the days of virtual transactions. At a time when business is just numbers and numbers, cryptocurrency suggests just that!
In its most rudimentary form of expression, cryptocurrency is proof of the concept of an alternative virtual currency that promises secure, anonymous transactions through peer-to-peer network networking. The wrong name is more property than real currency. Unlike everyday money, cryptocurrency models work without central government, as a decentralized digital mechanism. In the distributed cryptocurrency mechanism, money is issued, managed and approved by a collective network of colleagues – whose continuous activity is known as mining on peer machines. Successful miners also receive coins in gratitude for their time and resources used. Once used, transaction information is broadcast on a blockchain on a public key network, preventing each coin from being spent twice by the same user. Blockchain can be imagined as a cash register. The coins are secured behind a password-protected digital wallet that represents the user.
The supply of coins in the world of digital currency is predetermined, without manipulation, by any individual, organization, government body and financial institution. The cryptocurrency system is known for its speed, because transaction activities through digital wallets can materialize funds in a few minutes, compared to the traditional banking system. It is also largely irreversible by design, which further strengthens the idea of anonymity and eliminates any further chances of the money being returned to the original owner. Unfortunately, prominent features – speed, security and anonymity – have also made cryptocurrencies a way of transaction for a number of illegal shops.
Just like the real world money market, exchange rates fluctuate in the digital coin ecosystem. Due to the limited amount of coins, as the demand for currency increases, the value of coins inflates. Bitcoin is the largest and most successful cryptocurrency to date, with a market capitalization of $ 15.3 billion, occupying 37.6% of the market and currently priced at $ 8,997.31. Bitcoin arrived on the currency market in December 2017 by trading at $ 19,783.21 per coin, before facing a sharp decline in 2018. The decline was partly caused by the rise of alternative digital coins such as Ethereum, NPCcoin, Ripple, EOS, Litecoin and MintChip.
Due to the hard-coded constraints of their supply, cryptocurrencies are considered to follow the same principles of economics as gold – the price is determined by limited supply and fluctuations in demand. With the constant fluctuations of exchange rates, their sustainability remains to be seen. Consequently, investing in virtual currencies is more speculation at the moment than the everyday money market.
In the light of the industrial revolution, this digital currency is an indispensable part of the technological disruption. From the point of view of the casual observer, this ascent can look exciting, threatening and mysterious at the same time. While some economists remain skeptical, others see it as a lightning revolution in the monetary industry. Conservatively, digital coins will squeeze out about a quarter of national currencies in developed countries by 2030. This has already created a new asset class alongside the traditional global economy, and a new set of investment funds will come from cryptocurrency in the coming years. Recently, bitcoin may have fallen to draw attention to other cryptocurrencies. But this does not signal any decline in the cryptocurrency itself. While some financial advisers emphasize the role of governments in combating the secret world to regulate the central government mechanism, others insist on continuing the current free flow. The more popular cryptocurrencies are, the more control and regulation they attract – a common paradox that encroaches on the digital note and undermines the primary goal of its existence. In any case, the lack of intermediaries and supervision makes it extremely attractive to investors and causes drastic changes in everyday trade. Even the International Monetary Fund (IMF) fears that cryptocurrencies will displace central banks and international banking in the near future. After 2030, regular trade will be dominated by a cryptocurrency supply chain that will offer less friction and greater economic value between technologically capable buyers and sellers.
If cryptocurrency seeks to become an essential part of the existing financial system, it will have to meet very different financial, regulatory and social criteria. It will have to be hacker-resistant, consumer-friendly and well-protected in order to offer its fundamental benefit to the mainstream monetary system. It should preserve the anonymity of users, without being a channel for money laundering, tax evasion and internet fraud. Since these are necessary things for a digital system, it will take a few more years to figure out whether cryptocurrency will be able to compete with the real world currency in full swing. While this is likely to happen, the success of the cryptocurrency (or lack thereof) in solving the challenges will determine the happiness of the monetary system in the coming days.