Within a span of the last few months, whether it is the sudden upsurge of Bitcoin, Litecoin or Ripple, eyeballs have been grabbed by the plethora of cryptocurrencies that toppled into the economy and made rapid and massive profits in the market. So, what exactly is cyptocurrency, and why is it such a big deal?
Put simply, cryptocurrencies are digital assets, generally classified under what is termed as ‘alternative currencies’. This means that cryptocurrencies have no physical form or existence unlike notes or coins that are generally used in transaction. It does not seem much different from general digital transactions such as those carried out through virtual wallets like Paytm, or even general online banking transfers. These do not involve a direct exchange in cash.
However, transacting with cryptocurrencies is notably different. Here, the very mode of exchange in its origin is virtual in nature. All transactions made through normal currencies are reducible to cash. Online transfers can be later utilized by cash withdrawals whenever required. In contrast, cryptocurrencies are relatively difficult to reduce to cash, simply because there is not much of a tangible existence to them. Conversion can generally be done by several methods, all of which require selling it for an additional service charge, whether it is to a buyer or on a platform. Other apps that help to convert bitcoins exist, but their reliability remains uncertain. More significantly, conversion of cryptocurrencies can be done only if the policies of the nation allow its use. In countries that explicitly prevent recognition of cryptocurrencies, conversion on a formal reliable platform becomes difficult. It would, nevertheless, be an exaggeration to assume that there is an absolute impediment to conversion of cryptocurrencies.
Several observers have speculated, in any case, certain fuzzy boundaries over the reliability of trading in cryptocurrencies. This is because they have been used in several instances to carry out illegal transactions, smuggling, or for money laundering through the Dark Web. Altcoins often make it difficult to trace a particular source that can directly be attributed to users. The use of encryptions and cryptography make it susceptible to hacking. This can be linked to a primary feature of cryptocurrencies- they are a majorly decentralized mode of transaction. Unlike normal currencies that are regulated and centrally controlled by the governments and central banks of a nation, the basic construct of cryptocurrencies lacks such a closely tabbed system. This often makes tracking sources inefficient because there is no central authority that regulates its circulation. Governments of several nations has frowned upon cryptocurrencies for precisely this reason, and many banks have refused to accept its legitimacy.
Regardless, cryptocurrencies have seen an increased tendency of use, and have eclipsed the share market, with notably mind-boggling figures. Bitcoin spurted over 1,500% on a year-date basis so far. In terms of overall market capitalization, Bitcoin has the highest, a whopping Rs. 18.46 lakh crore, followed by Ethereum as Rs. 2.80 lakh crore, bitcoin cash at Rs. 1.66 lakh crore and IOTA at Rs. 0.7 lakh crore. Such euphoric rises invariably cause concern on part of several authorities as they fear a bubble crash. History has shown unnaturally inflated rises to be rarely a good thing for the market. It is unlikely that the growing trend of the use of cryptocurrencies will diminish quickly. For one thing it is a fairly convenient mode of transaction. Additionally, if examined critically, a wide base of users of cryptocurrencies involve illegal trade, and in particular this sphere will continue to boom as it feeds substantial monetary transactions, which was otherwise blocked in centralized modes of currency.
Cryptocurrencies are undoubtedly one of the most noteworthy technological advancements. Their advantages and dangers can be debated upon. However, few would disagree about their overwhelming ubiquity in the market, regardless their capability of retaining this position in the future. The phenomenal influence exercised by cryptocurrencies can hardly be ignored, and is perhaps indicative of just how big a part of our lives the virtual world is right now– fully capable of jolting the trade in the real world, with no paper or metal to touch, yet rising in size definitely, arguably much more than anything else in the history of market trade.
-Contributed by Tinka Dubey
Picture Credits: lifehacker.com