Blockchains, sidechains, mining – the terms accumulate in the secret world of cryptocurrencies in minutes. Although it seems implausible to introduce new financial terms in an already complex financial world, cryptocurrencies offer a much-needed solution to one of the biggest inconveniences in the money market today – transaction security in the digital world. Cryptocurrency is a definite and turbulent innovation in the fast-moving world of advanced technology, and it is a response closely related to the need for a secure medium of exchange in the days of virtual transactions. When trades are just numbers and numbers, cryptocurrency suggests doing just that!
In its most primitive form of the term, cryptocurrency is a proof of concept of an alternative virtual currency that promises secure, anonymous transactions through interconnected peer-to-peer networks over the Internet. Misnomer is more of a property than an actual currency. Unlike everyday money, cryptocurrency models operate without central authority, as a decentralized digital mechanism. In the distributed cryptocurrency mechanism, the funds are issued, managed, and approved by the collective community peer network – its ongoing activity is known as Mining On a peer machine. Successful miners also receive coins in recognition of their time and resources used. Once used, transaction information is broadcast to the blockchain in the network under a public key, preventing each coin from being spent twice by the same user. The blockchain can be thought of as a cashier’s registry. The coins are secured behind a digital wallet that is protected with a password that represents the user.
The supply of currencies in the world of cryptocurrencies is a pre-determined matter, free from manipulation, by any individual, institution, government entities, or financial institutions. The cryptocurrency system is known for its speed, as transaction activities via digital wallets can generate funds within minutes, compared to a traditional banking system. It is also largely irreversible by design, which reinforces the idea of anonymity and removes any other chances of tracing funds to their original owner. Unfortunately, notable features – speed, security, and anonymity – have also made cryptocurrencies the transactional method for many illegal trades.
Just like the real-world money market, currency rates fluctuate in the cryptocurrency ecosystem. Due to the limited quantity of coins, as the demand for the coin increases, the value of the coins inflates. Bitcoin is the largest and most successful cryptocurrency to date, with a market capitalization of $ 15.3 billion, it captures 37.6% of the market and is currently valued at $ 8,997.31. Bitcoin hit the currency market in December 2017 by trading at $ 19,783.21 per coin, before facing the sudden drop in 2018. This drop is partly due to the rise in altcoins such as Ethereum, NPCcoin, Ripple, EOS, Litecoin and MintChip.
Due to cryptocurrencies on 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 continuous fluctuations in exchange rates, its sustainability has yet to be seen. Thus, investing in virtual currencies is currently more speculative than the daily money market.
In the wake of the Industrial Revolution, this digital currency is an indispensable part of the technological disruption. From the point of view of an informal observer, this hike may appear exciting, threatening and mysterious all at once. While some economists remain skeptical, others see it as a lightning bolt of the money industry. On the conservative side, digital currencies will replace nearly 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 tools will come from crypto finance in the coming years. Recently, Bitcoin may have stepped back into the spotlight on other cryptocurrencies. But this does not indicate any collapse in the cryptocurrency itself. While some financial advisors focus on the role of governments in clamping down on the secret world of organizing the central governance mechanism, others insist on the continuation of the current free flow. The more popular cryptocurrencies are, the more scrutiny and regulation they attract – a common paradox that corrupts the digital note and weakens the primary purpose of its existence. Either way, the lack of middlemen and oversight made them remarkably attractive to investors and caused the day to day trade to drastically change. Even the International Monetary Fund (IMF) fears that cryptocurrencies will replace central banks and international banking services in the near future. After 2030, the cryptocurrency supply chain will dominate regular trade, which will provide less friction and more economic value between technically skilled buyers and sellers.
If the cryptocurrency aspires to become a fundamental part of the current financial system, it will have to meet widely differing financial, regulatory and societal standards. It needs to be piracy-resistant, consumer-friendly, and deeply protected to deliver its essential benefits to the prevailing monetary system. It should maintain the anonymity of the user without being a conduit for money laundering, tax evasion and online fraud. Since these things are essential to the digital system, it will take another few years to understand whether the cryptocurrency will be able to compete with real-world currency by leaps and bounds. While this is likely to happen, the cryptocurrency’s success (or lack of it) in facing challenges will determine the fortunes of the monetary system in the coming days.