We live in a dynamic business world, which is constantly evolving with newer innovations and technologies disrupting the traditional methodologies of living our day-to-day lives. When the world becomes comfortable with one technology, a newer and better technology often comes to play, breaking the routine and bringing about drastic changes. In today’s digitalized world cryptocurrency is a digital medium of exchange designed to transfer currency between peers without the involvement of the third party. It is a type of decentralized currency which works using cryptography to secure the transactions occurred between two parties across the world. The very commonly used medium of exchange in today’s economy is currency but different currencies of different countries generate a problem in worldwide transactions, here cryptocurrency proves to be a common mode of dealing economically throughout the world in form of online cash.
Cryptocurrency involves no restriction on time, place or person throughout the world. It is such a network that anyone can use or join without paying any fee or a very little amount of fee. This is a first decentralized digital cash system that works on no involvement of government authorities, banks or third party which makes it a fee less mode of transferring money from one party to another. In other words, it does not have a central issuing authority or regulatory body.
Cryptocurrency is a digital or virtual asset which controls the creation of additional units of the currency. Cryptocurrencies are classified as Litecoin, Namecoin etc. The first and very common cryptocurrency to capture the public imagination was bitcoins. Bitcoins were launched in 2009invented by Satoshi Nakamoto, an unidentified internet user.
Cryptocurrencies other than bitcoins are also used in today’s trading. Over the years since Bitcoin’s birth, hundreds of digital coins have taken to the crypto market, reaching up to a mark of almost 900 cryptocurrencies available on the web’s digital currency bazaar. By market capitalization, Bitcoin is currently the largest blockchain network. Litecoin is a form of cryptocurrency referred to as ‘silver to bitcoin gold’ launched in 2011.The other one Ethereum, launched in 2015 has a second largest market capitalization after bitcoins. They are continued by Zcash, Dash, Ripple, Monero etc.
The mechanism of bitcoins is based on a technique called cryptography. Bitcoins allows transfer of funds between two digital wallets which gets submitted to a public ledger called blockchains. In other words, the owners of cryptocurrency keep their digital coins in an encrypted digital wallet. When a transaction is made, wallets use an encrypted electronic signature or cryptographic signature to provide a mathematical proof that the digital coins are coming from the owner of the wallet. The confirmation process is taken over by miners. These miners are people who run programs on specialized hardware made specifically to solve proof-of-work puzzles. The powerful computers of miners keep a check on all the transactions, record them to the public ledger called blockchains and receive bitcoins as their rewards.
The confirmation is a typical concept of cryptocurrency so it takes place after a specific amount of time. This process of confirming transactions and adding them to the public ledger is known as mining. As long as a transaction is not confirmed, it is pending and can be forged. When a transaction is confirmed it is no longer forgeable. Bitcoins consist of a network of peers. Every peer has a record of the complete history of all the transactions and thus of the balance of every account. In order to add a transaction to the ledger, the “miner” must solve an increasingly-complex computational problem (sort of like a mathematical puzzle). Mining is open source, so anyone can confirm the transaction. The first “miner” to solve the puzzle adds a “block” of transactions to the ledger. The way in which transactions, blocks, and the public blockchain ledger work together ensure that no one individual can easily add or change a block at will. Once a block is added to the ledger, all correlating transactions are permanent and a small transaction fee is added to the miner’s wallet. The mining process is what gives value to the coins and is known as a proof-of-work system.
Bitcoin is new to the various economies and is being adopted by everyone at a rapid speed. To be a bitcoin trader or to invest in cryptocurrency we need to buy them from some exchange with fiat currencies. We can directly buy from international exchanges like Poloniex, Kraken, Bittrex etc. Various exchanges/brokerage firms where we can buy cryptocurrency through INR in India are Zebpay, CoinSecure, Unocoin etc.
If you want to trade cryptocurrency you need two basic things. The very first is cryptocurrency wallet. And the other one is a cryptocurrency exchange to trade on. A cryptocurrency wallet is a place where you store encrypted passwords that represent coins that is equivalent to storing money in a bank account and a cryptocurrency exchange is like a stock exchange or like a currency exchange in a foreign airport or in other words a place where people can trade cryptocurrency for other cryptocurrencies and for fiat currencies like the US dollar. Just like if you want to trade stocks you need a bank account and access to the stock exchange, it is the same deal with cryptocurrency but a cryptocurrency exchange is not part of the regular stock exchange. Everyone is free to choose any popular exchange, but coin base is a common and smart place to start due to ease of use following with many other cryptocurrency exchanges. A beginner should start by choosing a company with a good reputation that offers an exchange and wallet to keep the process simple. Bitcoin’s exceptional volatility allows for high percentage profits without leveraging. Bitcoin trades non-stop, 24 hours a day, 7 days a week. Bitcoin is probably the cheapest, quickest and most convenient instrument to trade.
Alternative currencies have been used throughout time as a means to promote commerce but the usage of bitcoins is gaining popularity in almost every economy in the world. Various countries like China, Hong Kong, Japan etc. have made trading of bitcoins legal in their economies. People of various countries are adopting this economical change including Indians also. A multitude of projects and companies have emerged to provide products and services that facilitate the use of cryptocurrency for mainstream users and build the infrastructure for applications running on top of the public blockchain.
Demonetization is also a reason for the rapid increase in the trading of cryptocurrency in Indian economy. During demonetization, India became almost a cashless economy which resulted in the popularity of bitcoins in India. After demonetization in November 2016, demands for bitcoin have gone up in the country. Indians purchased bitcoin at a premium of up to 20% within days of the demonetization.
Today’s scenario is demanding more decentralized and hybrid apps and soon blockchain based cryptocurrencies will take over the market in the coming years. Acquiring cryptocurrency is only the first step towards building a blockchain enabled India and many companies are taking initiative by converting their economic model of transactions into digitalized coin system. According to a report, the value of one bitcoin in 2012 was just 6 rupees and by 2017 it is equal to 45000 rupees. This makes easy to calculate the rapid increase in the usage of bitcoins in the world.
There are a number of factors that make cryptocurrency so different from the financial systems of the past. People are simply looking for easy money, and bitcoins proves to be much beneficial mode as there are absolutely no boundaries when we talk about the transfer of value. It’s just a matter of seconds for cryptocurrency to transfer value in the form of coins from one point to another as it does not recognize the concept of borders. Transparency is another great point of bitcoins. They are not only inexpensive but also reduce your efforts in comparison with the transfer of physical money. But eventually, there are some hurdles in the path of crypto currency’s growth. The very first cover the lack of unawareness and understanding of the mechanism of cryptocurrency. The other factor that stops people to invest in bitcoins is the risk involved. As a new and young currency people are afraid to bear the risk factor.
Cryptocurrency is a booming segment of the global financial industry despite the cynicism and the negativity surrounding it. Cryptocurrency does not have a central authority, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Another factor that criticises cryptocurrency is that since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely. Cryptocurrency is not immune to the threat of hacking. In Bitcoin’s short history, the company has been subject to over 40 thefts, including a few that exceeded $1 million in value. Cryptocurrency is difficult for people to understand, and the mechanics of key management confuse people which means that many people have purchased cryptocurrency and left them in the custody of others, only to lose them to insider theft or hackers. Cryptocurrency is volatile! There is always the chance that the market will crash, or that you will face some other catastrophe. Cryptocurrency isn’t a centrally controlled and regulated fiat currency. If you lose a coin or someone cheats you, there is essentially nothing you can do about it.
Cryptocurrencies had become a perfect tool for international criminals to launder funds, trade illegal substances and establish international trafficking. The absence of a central authority makes the general public using cryptocurrency for transactions a great target for “online robbery.” It also has a wonderful feature that if a criminal steals someone’s bitcoins, the victim wouldn’t even have anywhere to go to report the crime. The inability to reverse a fund transfer made in cryptocurrency also goes into the bucket of features making it a perfect vehicle for the crime. The lack of regulation and acknowledgment of bitcoin, which is attracting investors in India, is leading to an increase in fraud related to the cryptocurrency.
Not only from the perspective of citizens but it is also an issue for the regulatory bodies of various countries. Nothing scares the government more than something it can’t control. Since cryptocurrency allows people to keep all of their money, this is the big problem for the lawmakers. Most of the people are realizing that they can buy, sell and trade freely without government intervention, proves to be the horror of the lawmakers. This form of currency also promotes corruption. As no involvement of government or any other regulatory body, it opens a way for Black marketing. Many observers look at cryptocurrencies as hope that a currency can exist that preserves value, facilitates exchange, is more transportable than hard metals.
The creation of virtual currencies like Bitcoins as a medium of payments is not authorized by any central bank or monetary authority. The RBI had earlier warned that anyone dealing with virtual currencies would be doing so at his/her own risk.
Although currently, cryptocurrency is neither legal nor illegal in India. The Indian government is planning to generate an alternative mode of transfer of money to reduce the use of bitcoins in the country. As bitcoins touch record levels, a government panel has advised closing cryptocurrency dealers in India. As per a Business Standard Report, the government is considering a proposal to introduce its own cryptocurrency similar to bitcoins. The report also added that the government might name its cryptocurrency ‘LAKSHMI’. If the government goes with the proposal then the new Indian cryptocurrency introduced will fall into the hands of Reserve Bank of India.
The cryptocurrency mega-trend is here to stay and grow. Seeing their adoption rates and widespread commercial interest, almost every industry and field will be affected by the presence and usage of cryptocurrencies in one way or the other. But the features of cryptocurrency which makes it a crime tool is surely a matter of concern for the government as well as for the economies of the world.