Cryptocurrency is getting bigger as people invest their hard-earned money, seeing this as a money-making opportunity.
Let's begin with taking a quick look at the terms Cryptocurrency, and Bitcoin, which is one of the most widely-accepted cryptocurrencies.
Cryptocurrency, in simple terms, is a digital currency based on the Blockchain technology, designed with the ability to send, receive and trade, based on the principles of cryptography. Unlike printed money, cryptocurrencies are decentralised, which means they are not controlled by any traditional bank or government. You alone control your cryptocurrency.
Blockchain is a digital ledger where transactions made in Bitcoin or any other cryptocurrency are recorded chronologically and publicly. It allows users to keep track of digital currency transactions without central recordkeeping. Each computer in the network gets a copy of the Blockchain, which is downloaded automatically. For example, consider it a record book of which everybody on the network has one copy, and once changes are made by any one person, it is reflected in everybody's copy and is updated only if that particular person is authorised to do so.
There are a number of cryptocurrencies, and Bitcoin was the very first one, launched by Satoshi Nakamoto on a white-paper. Bitcoin was invented as a peer-to-peer system for online payments that did not require a trusted central authority.
With the passage of time, Bitcoin has gained popularity and success beyond what was imagined. It has grown to a whole new technology, and a powerful investment medium.
Now, the obvious question is - why does the world really need a cryptocurrency?
This is not a sudden change, and it has taken eight to nine years for cryptocurrencies to reach to the adoption stage from validation stage. If you compare the current time with the 90s where the use of internet was a bit shocking for people, we can say the biggest revolution in the tech industry after the Internet is ‘Cryptocurrency - Blockchain Technology’.
As stated by Ben Yu in one of his articles, Bitcoin was invented in the aftermath of the 2008 financial meltdown, and the crisis was indeed a motivating factor for its creation.
Any centralised banking system or institution that holds your money has control over your assets. For example, when you deposit a certain amount, say Rs 10,000, the bank doesn't keep all of that deposit for you, rather it invests almost 90 percent of your deposits and keeps only 10 percent in liquid form. The same happens with every customer. So, imagine, when suddenly a large number of customers need their money back, will the bank be able to solve their need?
Obviously, not and hence the world needs a decentralised payment system where only you control your money.
Over 50 countries have already started facilitating Bitcoin through Bitcoin ATMs, including the US, UK, Spain, Japan, Sweden, Australia and many others. Also, leading names in the tech industry such as Bill Gates and Sir Richard Branson are supportive of Bitcoin and the Blockchain technology.
The government holds the power to escalate its currency by unsecured means, and also controls the monetary policies. Bitcoin will make a difference to this and for the betterment of the society. Dissociating money from the hands of political leaders and legislation will not only give an advantage to the citizens of the country, but will also benefit the companies and the government too.
Is total decentralisation difficult to digest? Here’s how Cryptocurrency will affect the economy and solve problems in a decentralised manner:
Don't consider cryptocurrency only as a way of making payment. You might be wondering why so many cryptocurrencies are out there? Why is only Bitcoin not sufficient? Each cryptocurrency is trying to solve a specific problem with the use of Blockchain. Below are some of the most critical issues that Blockchain is capable of solving in an efficient and secure way:
1) Smart Contracts
Smart Contract is nothing but a piece of code that defines certain terms and conditions which need to be met for a contract to get executed. The outcome/result of the smart contract is always correct as every computer has the smart contract stored and must execute it to get the desired result.
Smart Contracts help you with almost everything having a value such as payments, property, mortgage, shares, etc, maintaining a conflict-free environment and avoiding any middle party frauds. (eg. Etherium, NEO, Lisk)
The healthcare sector is considered one of the prime sectors as it deals with the life of humans. Due to various malpractices and counterfeiting in the pharma industry, lives are put at risk. Drug counterfeiting, alteration of medical records, wrong/incomplete patient data, etc, can be solved with Blockchain. Blockchain allows drug manufacturing companies to track their products down to the supply chain, creating a secure loop that will prohibit counterfeit products. Also, Blockchain maintains a log every time there is an access by any party, which helps in verifying the records at any point of time and by giving patients more control over whom they can share data with.
3) Cross-border transactions
Traditional cross-border payments are huge in transaction costs, and come with bank delays. This creates a problem for customers to transfer payments. Blockchain has already shown its strength in peer-to-peer money transfer. So, to create a hassle-free payment system for cross-border transactions, eventually Blockchain can solve high transaction cost and delay issues. (eg Bitcoin, Litecoin)
The power of the web has become centralized with the advent of internet giants and other social networks. You are no more the only one to control your data. Every website/application seeks your data for registration and has all the rights to access your data. So, there is a continuous privacy breach of a person’s data.
Blockchain helps resolve privacy issues by letting users access the web in a way where the whole control of a user’s personal information lies in the hands of the user, making the web experience more private and secure. (Privacy focused coins: Dash, Monero)
5) Mortgage and insurance
The mortgage industry is also being digitised and the credit goes to Blockchain Technology. Blockchain is digitising legal records, and proceedings which will serve as a great alternative to the cumbersome paper-work and maintenance of various kinds of legal records by recording everything on a shared ledger making it unalterable and saving tons of paperwork for lawyers.
The insurance sector has to deal with many frauds, especially identical claims fraud. Instead, if all the claims were put on Blockchain, it will give clarity and also become undeniable. Hence, both the customer and the insurance company would be benefitted by this. (eg. Factom Coin)
According to a recent article by Mo Marshall on VentureBeat, Blockchain startup Block.one raised $185 million in just five days of selling its EOS cryptocurrency token. That sum breaks the record Bancor had set just a couple of weeks ago with its nearly $150 million raise.
Well-known Indian angel investor Sanjay Mehta is backing EOS and is in the managing team of Block.one.
Cryptocurrency is getting too big to fail, but there are some market corrections that can’t be ignored, as people invest their hard-earned money, seeing this as a money-making opportunity. Many also invest in altcoins without knowing the exact purpose, and the team behind that particular cryptocurrency.
Bitcoin, Ether and others are real. These methodologies have a powerful future in our global financial system, though no one can predict what that will be. We can, however, confidently predict there will be casualties.
When some of the dozens of cryptocurrency schemes crash, there will be a pain. However, the long-term impact on our economy of these experiments will be positive. The more troubles occur early, the more likely economic actors might successfully climb steep cryptocurrency learning curves.
The opportunity to quickly generate enormous wealth makes investment innovations powerfully attractive — and dangerous.
Most investment innovations are fully digitisable or nearly so, and thus rapidly scalable. When a new financial instrument starts making some money, others pile on. A few early entrants do remarkably well. Later entrants, providers or investors, have to pay a higher price and assume more risk.
So far, this doesn’t appear different from other digitisable business concepts. We’re right now in the late stages of a gold rush for Uber-like models. A few will win and most will fail, and that’s just fine. By contrast, investment innovations can become, in a sense, “too big to fail.”
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(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)