A cryptocurrency is a form of digital currency meant to make internet transactions extremely safe. Investors and authorities are paying attention to the unexpected increase in the value of cryptocurrencies. The digital era has surely aided in the advancement of our understanding and use of money. We are also on the verge of a new financial revolution, which is linked to the fourth industrial revolution. There are currently 9,271 distinct cryptocurrencies available, with Bitcoin, Ethereum, Tether, BNB, and USD being the most renowned ones.
Cryptocurrencies, despite being older than the iPad, have just entered the public sphere, with their impact being predominantly felt in the last three or four years. The aspect of digital currencies has spread to numerous banks, including JP Morgan and Wells Fargo, which are developing their own cryptos. Blockchain, AI, IoT, and a slew of other technologies are making inroads into our daily lives as more traditional concepts and technologies are scrambling to stay up or risk becoming obsolete.
Bitcoin, one of the most popular cryptocurrencies, was launched in 2009 and employs peer-to-peer technology to enable rapid transactions without the involvement of institutional bodies such as banks or governments. A password or a private key is required to access the received cryptocurrency in the wallet. Furthermore, the transaction is safeguarded by blockchain technology when it is sent from one wallet to another.
Physical currency serves as a universal measure of worth as well as a quick means of transmitting it. The switch to such a system would very certainly be tough, as cash may become incompatible in the blink of an eye if the crypto world advance at the current pace. Established banking institutions would almost certainly have to hustle to adapt. Governments across the world are now accepting blockchain and cryptocurrency. According to the Gartner report, 83 nations are currently experimenting with or deploying as such Central Bank Digital Currencies, or CBDCs, which account for 90 percent of global GDP. While many businesses initially offered to accept Bitcoin during its first boom, this list has progressively reduced, reinforcing doubt about the cryptocurrency's potential as a medium of trade.
In India, cryptocurrency boomed relatively late when it already cost millions of rupees, as a result, Indians have few Satoshis (small units of a bitcoin) but this isn't the case in every situation. People are dealing in smaller units such as milli or micro bitcoins as the worth of cryptocurrency.
Furthermore, the price of a cryptocurrency varies between exchanges, which is a clear breach of the legislation of one price.
While bitcoin performs admirably as a wealth vault, its volatility makes it riskier and exposes it to increased danger of loss.
Several variables influence the price of a single bitcoin, like supply and demand, competition, and regulation. Investor perceptions of cryptocurrency are also influenced by recent news events.
The lack of other traits for crypto in India is typically associated with modern physical currencies; they cannot be deposited in a bank and must be held in digital wallets, which are costly and risky due to the possibility of hacking, staff corruption, public IP addresses, and ransomware. In many aspects, government supervision over central currency is essential for regulation, and cryptocurrencies would function with far less government oversight.
Bitcoin's supply is set; there is an absolute limit of 21 million units.
In order to maintain steady price levels, the money supply must be able to rise in lockstep with macroeconomic activity, otherwise, the problem can only be solved by raising the velocity of money or by a substantial drop in prices. This might put the economy in jeopardy.
For investors, bitcoin's artificial scarcity is a benefit: increased demand combined with inelastic supply leads to a greater price. The lack of a central regulator renders investor protection untenable and raises the likelihood of greater instability. People engage in these markets expecting the cryptocurrencies would grow in the future; this presumption fuels speculative behaviours, and a quick shift in the presumption may cause the market to crash, injuring many naive investors.
The magnitude of economic harm is influenced by the connectivity between crypto-assets and the traditional banking industry. According to economists, direct exposure from cryptocurrencies to the financial system might be transmitted, and indirect repercussions could expand to other asset classes. Crypto assets, according to the RBI financial stability report (2021), offer long-term risks for capital control management, financial and macroeconomic stability, and monetary policy transmission.
China has taken the toughest stance on cryptocurrencies, going from allowing crypto mining to outright prohibiting it as of June 2021. Regulations are divided between the federal and state governments in the United States and India. Most EU draught Markets in Crypto-Assets Regulation (MiCA) legislation was announced by the European Commission in September 2020. The UK is currently supervised by the Financial Conduct Authority (FCA). It's worth noting that the South American nation was the first to declare Bitcoin to be legal cash.
If we look at the evolution of crypto as a currency, it has virtually achieved its goal of decentralisation, and is now one of the main firms such as Tesla, Microsoft, and Meta are investing in it. On the other hand, the emerging cryptocurrency has the issue of being hackable. In the long run, if cryptocurrency continues to develop at its current rate, it may eventually replace fiat currency, resolving the issues of hacking and extreme volatility.
