Any digital currency whose creation and management relies on advanced techniques of cryptography, is commonly referred as cryptocurrency. The world saw cryptocurrency turning into a (virtual) reality from an academic concept back in 2009, when Bitcoin, the world’s first modern cryptocurrency, was launched.
Despite facing some strong opposition and a few serious roadblocks, Bitcoin was able to grab significant attention in only a few years after its launch, bringing cryptocurrency into limelight on a global scale. Today, millions of people spread all across the world are not only aware of it, but are also involved in cryptocurrency mining and investment.
What’s happening in cryptocurrency world right now?
As of now, cryptocurrency has grown far beyond anyone’s initial reckoning, constituting a total market cap of over $24 billion, Bitcoin being the lead contributor here as well, with more than $16 billion to its name. The most amazing thing is that it has grown in value from a mere few cents in its initial years to more than the value of one ounce of gold, and it’s not even a decade old. Currently, the price of one ounce of gold stands at around $1,233, whereas the value of 1 Bitcoin (1 BTC) has gone past $1,400.
Truth is that this kind of growth rate over an investment is way too irresistible for investors, which has not only solidified the position of Bitcoin as the world’s best cryptocurrency, but also contributed in emergence and growth of many alternatives in cryptocurrency as well, collectively referred as ‘altcoins’. Some of the most popular altcoins include Ethereum, Litecoin, Dogecoin, Abundeum, Goldime and Hedgenickel.
So, the question now remains whether this fast evolving ecosystem of cryptocurrencies be able to take place of conventional currencies in future or not.
What makes it different than conventional fiat currency systems?
First of all, cryptocurrency is decentralized in essence, being run across a peer-to-peer (p2p) network, which collectively takes care of everything from new currency issuance to verification and transaction processing. While decentralization helps cryptocurrencies stay away from interference or manipulation by governments, it also means there is no central authority or governing body designated with the responsibility of running things seamlessly. On the contrary, the whole network is involved in ensuring smooth running of all the processes and practices involved, bypassing the need of any centralized governing authority altogether. On the hindsight, it looks quite unlikely, but this is where the cryptographic principles come handy, making it almost impossible for a person or a group to manipulate transactions, which are accessible to all the participants of the network.
Unlike traditional currencies, where new currency units are published under the consent of the respective government or some other central governing body, new units of a cryptocurrency are created digitally, following a process referred as “cryptocurrency mining“. To do so, powerful computing systems and dedicated efforts are required in solving complex cryptographic algorithms, and those who do so are commonly known as the “miners” in a cryptocurrency network. For example, after some recent developments, new Bitcoins are currently being created or mined at a rate of about 12 to 12.5 units every 10 minutes, or around 1800 to 2000 new Bitcoins every day, and this rate is expected to continue till next 4 years to June-July 2020.
These are some of the features that make cryptocurrency fundamentally distinct as compared to a traditional fiat currency, which is backed heavily by faith of its users and credit of its government. Currency issuance for fiat currencies is a centralized process supervised mostly by a country’s or region’s central bank. While the amount of currency issued is regulated by the central bank, in accordance with the type of monetary policy objectives set for it by higher authorities, theoretically, there’s no upper limit to the amount that can be issued as such. Moreover, some sort of government body generally insures local currency deposits against instances of bank failures. Contrastingly, there is no such mechanism in place for cryptocurrencies and their value is totally dependent on how much investors are willing to pay against them at any point in time.
Despite a phenomenal growth in a relatively short period of time, cryptocurrencies still face some limitations, such as an unwanted and unexpected computer crash of global scale wiping out the record of one’s digital fortune (which is very unlikely though), or a hacker breaching security of the virtual vault holding crypto wealth. But truth is that such issues can be resolved through rapidly advancing technological breakthroughs. What’s harder to surmount as a problem, though, is that cryptocurrencies can become highly susceptible to increased government regulations and scrutiny as they grow in popularity, which can potentially erode the basic premise of their existence.
No one can deny the fact that the number of merchants around the globe ready to accept cryptocurrencies as an alternative means of payment has increased steadily, especially after 2013. In fact, the number of ATMs dealing in Bitcoin in United States of America alone has gone over 1000 quite recently. However, they are still considered very much as a minority. For cryptocurrency to become a truly global phenomenon like its traditional counterpart, fiat currency, it has to add massively to its user-base, convincing more people to resort to it, trust it and transact through it. Of all other things still keeping masses from adopting cryptocurrency is complexity surrounding how it functions, compared to how fiat money does, though the same complexity turns out appealing to technologically adept users.
The bottom line is, if cryptocurrency wants to turn into a viable option of dealing in mainstream financial system, it has to come up to the satisfaction of a widely divergent criteria. It should remain complex enough to deter hacker attacks and fraudulent instances, but easy enough for general public to gain their interests. Similarly, it should strengthen in its attributes of decentralization, while accommodating adequate consumer protection – offering user anonymity without acting as a medium for tax evaders, money launderers and other such activities. The good news is that every passing day results in more and more people paying attention to it, including the likes of global financial conglomerates as well as masses around the globe. And with considerable level of research and development based activities becoming a part of cryptocurrency realm, the future remains bright for its global acceptance.
Via: Guest Post by Ayesha Irshad