The first time I heard about Bitcoins was through a friend, who patiently explained to me about the cryptocurrency concept and how Bitcoins are mined. My first thought was “Hold on, this has to be a scam. It’s not going to last long.”
Years later, I humbly take my words back. Cryptocurrency has been approved, accepted and implemented by the world’s prominent brands and foundations online. The idea and concept of cryptocurrency was initiated and developed by the mysterious Satoshi Nakamoto, whose aim was to create a new and revolutionary form of digital cash flow. For example, you can extract coins from your bank and the currency is limited in amount. Money entails a verification system of entry or input in an online listing platform or database consisting of accounts, transactions and balances.
The question that comes to mind is who confirms these transactions? Transactions are verified by “miners” and for this task, they get paid with digital tokens.
Rising Interest in Cryptocurrencies
The surge of interest is cryptocurrencies, as explained by analysts and experts, is due to increased visibility. According to Matthew Unger, founder and CEO of iComply Investor Services Inc., “The buzz and hype in the market is increasing traffic as more of the public seeks to understand this market.”
Zack Friedman, CEO of Make Lemonade stated that although cryptocurrencies have unquestionable benefits, their future still seems ambiguous. “Proponents of cryptocurrencies cite several key advantages, namely decentralization, anonymity, security and automation. However, investors are split regarding the stability and merits of cryptocurrencies, with some believing they represent the wave of the future, while others dismiss them as pure speculation.”
Advantages
The technology that supports cryptocurrencies is called blockchain technology. According to Fortune Herald (http://fortuneherald.com/business/blockchain-believe-cryptographic-proof-instead-trust/), “blockchain is a decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network. All online activities are organized into chunks of data named blocks, which are linked to one another forming a block chain. Through the use of miners that monitor, verify and record the transactions, every party involved in that business network can witness and access their log of transactions.”
Experts declare that blockchain technology adjourns the financial facilities by dropping the cost and complications posed by financial services. The effects and implications of blockchain technology are wide-ranging and not just limited to the area of finance, but extends itself to education, technology, law, government and many other fields.
According to an expert, “cryptocurrency can essentially act like “a large property rights database and can be used to execute and enforce two-party contracts on items like real estate and automobiles, thus eliminating expensive brokerage and legal fees.” Another expert, Paul Vigna explains “the blockchain keeps everyone honest, and a whole layer of banking bureaucracy is removed, lowering costs.”
Charles Bovaird, a financial writer and consultant states that digital currency cannot be forged and a sender cannot reverse a transaction capriciously, which is what can be achieved with credit card chargebacks. Digital currency is based on a “push” model, where the senders of cryptocurrency will transfer precisely what they desire to a seller of goods, without any need for an additional form of information. Credit cards, on the other hand, rely on the “pull’ prototype where a seller “pulls” an amount from the sender’s card. Additionally, there are no limitations due to exchange or interest rates, or even transactional costs. Cryptocurrency transactions are processed at a similar speed, irrespective of the sender’s or receiver’s location.
Risks
Friedman quotes the founder of Bridgewater (an investment company) Ray Dalio stating the Bitcoin as a “bubble.” According to Friedman, investors should be careful in considering cryptocurrency investments because of price instability and governing intercession. As he states “Expect continued price volatility. Cryptocurrencies represent a new frontier. Therefore, retail investors should expect volatility and significant price swings as markets develop. While cryptocurrencies have experienced explosive growth, they currently remain a relatively small part of the global financial ecosystem. Regulators and policymakers will continue to monitor cryptocurrencies to determine any potential impact to financial stability or broader systemic risk.”
The fact is that cryptocurrency is gradually developing into the quickest method of online transactions. Its advantages in modern economy might appear revolutionary, reducing global obstructions and enabling customers to increased amounts of savings during purchases. But knowing the risks and terminologies of digital currencies are some essential factors that need to be addressed and becoming aware of for smoother, more efficient transaction processes.
