Blockchains, sidechains, mining – terminology in the secret world of cryptocurrencies piles up in minutes. While it sounds unreasonable to introduce new financial conditions 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-moving world of fin-tech, an appropriate response to the need for a secure medium of exchange in the age of virtual transactions. At a time when bids are just digits and numbers, cryptocurrency suggests doing just that!
In its simplest form, cryptocurrency is a proof of concept for an alternative virtual currency that promises secured, anonymous transactions over peer-to-peer network networks. The wrong name is more of a property, not an actual currency. Unlike everyday money, cryptocurrency models operate without central government, as a decentralized digital mechanism. In a distributed cryptocurrency mechanism, money is issued, managed, and approved by a network of collective community peers – whose ongoing activity is known as mining on a peer machine. Successful miners also get coins by valuing their time and resources expended. Once used, transaction information is broadcast in a blockchain on a public key network, preventing each coin from being spent twice by the same user. The blockchain can be considered a cash register. The coins are secured behind a password-protected digital wallet that represents the user.
The procurement of coins in the world of digital currencies is decided in advance, without manipulation, by any individual, organizations, government entities and financial institutions. The cryptocurrency system is known for its speed, as transaction activities through digital wallets can materialize funds in minutes, compared to a traditional banking system. The design is also largely irreversible, which further reinforces the idea of anonymity and eliminates any further chances of asking for money back 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, currency rates oscillate in the digital coin ecosystem. Thanks to the final amount of coins, as the demand for the currency increases, the coins inflate in value. Bitcoin is by far the largest and most successful cryptocurrency, with a market capitalization of $ 15.3 billion, which occupies 37.6% of the market and currently costs $ 8,997.31. Bitcoin entered the foreign exchange market in December 2017, trading at a price of $ 19,783.21 per coin, before facing a sharp decline in 2018. The decline is partly due to the rise of alternative digital coins such as Ethereum, NPCcoin, Ripple, EOS, Litecoin and MintChip.
Due to the severely coded constraints of their supply, cryptocurrencies are considered to follow the same economic principles 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 currently more speculation than the everyday money market.
After the Industrial Revolution, this digital currency is an indispensable part of technological disruptions. From the point of view of the casual observer, this climb can suddenly seem exciting, threatening, and mysterious. 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 next few years. Recently, Bitcoin may have taken a bath to point the light at other cryptocurrencies. But that doesn’t mean any decline in the cryptocurrency itself. While some financial advisers emphasize the government’s role in tearing down the secret world in regulating the central governance 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 disrupts the digital note and erodes 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 crypto supply chain that will offer less friction and greater economic value between technologically skilled buyers and sellers.
If a cryptocurrency aspires to become a key part of the existing financial system, it will have to meet very different financial, regulatory and social criteria. It will have to be protected from hackers, consumer-friendly and strictly protected in order to offer its basic benefit to the main 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 for a digital system, it will take a few more years to figure out whether a cryptocurrency in full swing will be able to compete with the real world currency. Although likely to happen, the success of the cryptocurrency (or lack thereof) in solving the challenges will determine the richness of the monetary system in the days to come.