ডাকবাংলা

Ripple. Blockchain. HODling. Cardano. WazirX. Zebpay. ICO’s. 

Cash is so pre-demonetization and bank balances/fixed deposits are so pre-Covishield.  If you are one of those people who has no idea what any of these terms mean, your ilk is going to sink into the muddy depths of the Hooghly very soon. The ‘currency of the future’ – Cryptocurrency is here and here to stay. Despite all the efforts of older, more traditional investors, regulators and centralized banks to kill it, it is an idea whose time has come, it is the future. 

As I write this, we are in the midst of a global WhatsApp, Facebook and Instagram outage. The applications have been down for a couple of hours now and there seems to be a frenzy among the ‘tech-savvy’ public, “Is there something wrong with my phone?” “How long is this going to last?” I received a text message (after what seems like ages) asking me, “Is your WhatsApp down too?” This is the power and clout of technology on our lives today. It has taken over our social life completely and will inevitably ambush our financial life too! 

For the uninitiated, Cryptocurrency is a form of digital/virtual currency that functions in a decentralized system – a shared ledger that facilitates the process of tracking transactions. This decentralized nature of the blockchain sets it apart from traditional methods of recording and tracking. It also essentially means that no governmental authorities can regulate it, because the cryptocurrencies are not a part of any country’s legal set-up – it is in fact issued by private individuals and companies. 

This decentralized ecosystem is operable and possible due to the presence of blockchain technology. Simply put, blockchain stores data in blocks that are chained together. It is a digital ledger of transactions that is a secure way for individuals to transact with each other without an intermediary. The biggest advantage of such a decentralized blockchain is that data once recorded is irreversible – it is permanently recorded and cannot be tampered with easily. 

While most individual traders are now purchasing and trading the currencies on exchanges, the originals ‘mined’ these coins on their computers. It means gaining cryptocurrencies by solving cryptographic equations through the use of computers. Data blocks need to be validated and transactions are added to the blockchain. 

The original cryptocurrency – Bitcoin – came into being in early 2009. This was a volatile period for the financial sector as the global financial crisis took over the world and the public’s trust in governmental or banking institutions was eroding fast. The idea of being able to trade without any interference from the ‘authorities’ became a viral proposition. Satoshi Nakamoto, the creator of Bitcoin, put a hard cap on the total number of Bitcoin to ever be mined – 21 Million. 

This strict limit on number is encoded in Bitcoin’s source code. This limitation is one of the primary reasons of Bitcoin’s value proposition – the rarer an item, the higher its value would be. It follows the basic economic principle of demand and supply – rising demand and limited supply cause sky-high pricing. About 18.50 million Bitcoins have been mined so far, meaning 89 percent of all the Bitcoin that will ever come into existence have already been brought into circulation. Its total market value exceeded $1tn in February this year. 

There are more than 6,000 different cryptocurrencies that are traded publicly across the world. Due to the open creation process of mining a crypto, it is relatively easy to create one. However, the top twenty cryptocurrencies make up nearly 90% of the total crypto market.  

One of the chief criticisms of this market place is the volatility. Being operational for twenty-four hours means that it doesn’t have an opening and closing time, like your traditional stock market. You may switch off for 10 hours – and you might lose a fortune. The nature of volatility is also visible when one tweet from a major investor (read, Elon Musk) sent the Dogecoin in a tizzy. If risk is your thing, crypto is for you, you can end up on the winning or losing side in a matter of minutes. The introduction of possible government regulations is another factor which is contributing to this rising instability. The markets are not reacting well to such news and there is much debate on the legality of these cryptocurrencies. 

China’s ban on cryptocurrency, and the increasing awareness among various governments that they need to define and control these digital assets, is a sign that most of them see this rapid rise as a threat to traditional financial institutions. There is also a fear that they pose financial risks to the uninitiated and naïve investors – who are just trying to ride the wave, but are generally unaware of the intricacies of this world. However, this has highlighted the importance of digital currencies and some first world nations have already proposed starting their versions of this ‘new-age’ currency. 

As the popular saying goes, you may like it, you may dislike it, but you definitely cannot ignore it. Cryptocurrency may not replace physical currency as we know in the next 8-10 years – but it is definitely here to stay and will slowly and steadily become a viable investment option for one and all. 

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