When “Bitcoin” burst onto the scene in 2013, we were left scratching our heads as to the impact this will have on the economic climate. A story that completely baffled economists and governments was this phenomenon that suddenly was more valuable than Gold! After it’s initial high came the sudden drop. Over time, many of us might have wished that we had bought a few coins. The question remains, is cryptocurrency the future or a hoax?
Let’s take a closer look.
What is Cryptocurrency?
A digital medium of exchange that exists only on a computer is a crypto currency. It has replaced physical coins and notes with bits of software. It does not conform to any form of government or financial institutions like central banks. Complete financial freedom is how it’s explained to the world. Regulated and controlled by the internet and decentralized to systems across borders and computer systems. The first form of cryptocurrency was called Bitcoin, formed in 2009.
Bitcoin
The original form of crypto currency or Altcoin (alternative currencies), Bitcoin, was created by someone under pseudonym Satoshi Nakamoto. Back then it felt impossible that cryptocurrencies would ever take off. You could invest in Bitcoin at 6 cents or ₹4.5 per unit. Even the smallest Dairy Milk chocolate costs ₹10. In comparison, at its peak in 2017, the value of a single Bitcoin was $19,783.06 or nearly ₹15 lakhs! A staggering jump that dreams are made of. Those who invested in Bitcoin as a joke were suddenly millionaires overnight. Even today, Bitcoin trades at around ₹7.6 Lakhs per unit. Now that’s a lot of chocolate!
Over the years, 6000 variants of the Bitcoin have been created.Other famous forms of Altcoins are Ethereum, Ripple, Litecoin, Tether, Libra, Monero, Binance Coins among others.
Blockchain
Every legal form of currency known to man is regulated through a bank or the government. A centralized source of information all in one place. So if you need to send someone money, a bank will verify that amount is true before sending it forward. This could take some time.
With Blockchain, you bring that verification time down to mere seconds. This is because Blockchain is a record of every Bitcoin record of creation, transaction and is spread across a vast network of computers always up to date and always available. Which is why it’s called a decentralized currency. Hence the advantage of superior speed and security. Every other form of centralized currency has one point of attack. This makes it easier for hackers to break in. Big corporations like IBM, Walmart and Google are now employing blockchain methods to secure their own data.
Major issues
Open Source
Since they are created on open source, anyone who can write code can create crypto currency. Because we all know how trustworthy the internet is, people need to read the fine print before purchasing in Altcoins. There are instances of altcoins created as a joke like DogeCoin that are now worth over $2 billion due to a market buying frenzy.
Fragility and Volatility
The only reason cryptocurrency has monetary value is because people decided the value. It is very fragile and volatile in nature. The price was driven up due to rapid media interest which led to a crazy price run-up. Investing in Altcoins is extremely uncertain. The crash in 2018 is an example of just that. The future of its market value is still speculative at best. People fear it’s only a matter of time before governments across the globe step in to regulate cryptocurrency.
Pump and Dump
Pump-and-dump is a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. This practice is illegal based on securities law and can lead to heavy fines and jail time, as brilliantly portrayed in “The Wolf of Wall Street”. However, due to almost no government regulation and lack of policies, Pump and dump schemes are vastly prevalent in the cryptocurrency world. People scheme to buy massively into altcoins and when the price soars in a few hours they sell all together and make huge amounts of money. In other words, this is a Ponzi scheme.
No Regulation
Cryptocurrency, having no regulation, also means it can be spent on illegal services like drugs, trafficking, weapons and other criminal operations. It cannot be traced and answers to no laws. This in turn makes criminal syndicates and organised crime more powerful than ever before.
Password Recovery is Impossible
Password recovery doesn’t exist. There is no way to get back your data like you would if you forgot your email password. There are stories of people losing millions of dollars in bitcoin only because they did not remember their password.
Energy Consumption
Just powering the servers controlling the blockchain ledgers uses more energy than some countries combined. It is extremely slow and inconvenient to use.
In India, the RBI banned cryptocurrency in 2018. However in April this year, the Supreme Court overturned this ruling and has instructed financial institutions to start accepting cryptocurrency payments. The court may have overturned the ban but has not ruled in favour of the legality of cryptocurrencies as yet. In 2019, the Parliament created a bill to criminalise possession of cryptocurrency but this bill never reached the floor of the house. You can now invest in Altcoins till new regulations are put into effect.
However, we do not believe that all cryptocurrency and Altcoin are bad. It just means that unless you like to gamble please be careful what you are investing in. Read up all you can about the cryptocurrency you are looking to invest in. No one can predict the future and we do not know if this is the future of finance. People believed we would have flying cars by now while some did not believe “The Beatles” were good enough. It is easy to wish to become really rich really fast but it could also cost you everything.
If you have any further questions about Cryptocurrency, I’d be happy to answer them.
