Introduction:
A Cryptocurrency is not a currency. Yeah! You get it right . It is a digital asset, which works through cryptography. A distinguishing feature about Cryptocurrency is that they are not issued by any Central Government. And so, they are outside the purview of any legislation or legal criteria. There are large number of Cryptos in circulation, however, while some are immensely popular, many of them have very little or “zero” trading volume. Of all the Cryptocurrencies, Bitcoin leads the pack, followed by Ethereum, Biance coin, Cardano, Tether and so on. Different Cryptocurrencies have different specifications. Some are easily detectable while others are not. Some have vey less transaction time.
All the Cryptocurrency works through the technology, called Block-Chain. But what exactly is Block-Chain? A Block-Chain is a digital record-keeper of all the transactions. It is decentralized in nature and distributed across network of computer systems. So, the moment transactions took place, they need to be verified. The people ,who are active on the network, are supposed to verify it. This process is called “mining”. It requires massive amount of computing power and complicated algorithms. After the verification, the transactions are added to the “chain” in the form of “Blocks”. And people who have successfully verified it are given rewards in the form of underlying Cryptocurrency.
Comparing it with Fiat Currency, which is backed by governments, Cryptos has some inherent advantages as well as some disadvantages which are discussed below:
Advantage:
1. No
Intermediary Required: When we transact through
money, the overall transaction from beginning to completion is under the vigil
of Bank. But, in transactions through Cryptocurrency there is not any
involvement of the third party, i.e., only sender and receiver will be there. Due
to this the transaction charges are minimal.
2. No
Geographical Barriers: The transactions are
conducted on peer-to-peer basis i.e., you can send and receive payments to or
from anyone on the network around globe.
3. Privacy:
Since, there is not any involvement of any third party in between , you can
bypass the inconvenience of authorization requirement, giving you more privacy.
Disadvantage:
1.The
biggest flaw with the Cryptos is that they are very volatile in nature. It is a
very “ high risk high return” proposition. For example – if you follow the
market trends of Bitcoin, you will see a very sharp jump in its prices.
Also,
there is no definite correlation between state of global economy and its price.
2.The
transactions are irreversible in nature. In case, you have transferred money to
a wrong person, you cannot get it back. It depends on the whims and fancies of
the person who received it.
3.Their
semi-anonymous nature encourages their usage in host of illegal activities.
The bone of Contention:
The
Governments across the globe barring El Salvador, are hostile towards Cryptos.
Some even questioning its legitimacy.
There
are two major reasons for that:
1.Disruption
of Existing Financial Structure: The Governments and Central banks have the
monopoly over regulation and issuance of money. And Cryptos are undermining
their monopoly by offering us an alternative system of monetary transaction.
2.Illegal
activities: There is a prevailing belief that money, through Cryptos, are
involved in a lot of nefarious activities like Tax evasion and Money Laundering.
It gives them the ability to bypass financial scrutiny and encourages them to
camouflage their involvement in such activities.
Cryptocurrency block-chains are highly secure but it’s other facilities like wallets, exchanges are not much immune to the threat of hacking. There are multiple instances where several exchanges have been hacked in the recent past. Although in India, there is not any law that prohibits trading in Cryptocurrencies, yet at the same time they are not recognized as legal tender of money. In April 2018, RBI issued a circular banning financial institutions from providing services to people dealing with Cryptos. However, Supreme Court of India overruled that order.
Presently,
we are getting a mix of responses from people. Many prominent people, like Gita
Gopinathan (IMF) and Warren Buffett, have expressed their skepticism about the
Cryptos. They claimed that it is a bubble which will eventually burst. However, proponents ,like
Jack Dorsey (CEO, Twitter), feels that it will protect against currency
devaluation and expedite transfers. They think that it will bring more freedom.
However,
there are some of challenges that Cryptocurrencies currently faces such as
computer crash, thefts by hackers and fraudsters etc. While they can overcome
these challenges through technological advances in coming time, but the main
problem is that the more popular they become, the more liable they are to
attract government restrictions.
So, for them to be a part of mainstream
financial system, they must satisfy a wide range of divergent criteria. For
example- they need to be very complex enough for hackers and fraudsters to
break, but very easy for common people to understand. Also, they should provide
anonymity to its users, but at the same time do not become a heaven for tax
evasion and money laundering. Though, these criteria are not easy to satisfy,
yet they are the only way forward………
About
The Writer
A
Finance enthusiast person loves to deconstruct and explore the field of
finance, talks about the complex world of cryptos.
No comments:
Post a Comment