Cryptocurrency is an example of an innovation that is completely altering the way finance is managed.
Even if we do not intend to invest in cryptocurrencies, it is important to understand them. We know the fundamentals of market ups and downs, even if we do not actively invest in them. Right?
If you are interested in learning about Cryptocurrency, check out the websites providing free courses on them.
What is Cryptocurrency?
It is a blockchain-based, decentralized digital currency.
Doesn’t it seem like Greek and Latin to you?
Let us break it into four parts to understand better:
1) Currency- Medium of exchange. Ex. INR, dollar
2) Decentralised–
The majority of Cryptos are not governed or controlled by any authority. Unlike the INR, the dollar, or any other fiat currency that is centralized and managed by central bodies such as the RBI, the CB, or the USFED(the U.S Federal Reserve). Some cryptos, on the other hand, are centralized. So, unlike INR and Dollar currencies, which governments manage, the rules of Cryptocurrency are already set, and no one can modify them.
3) Digital–
You cannot touch or feel Cryptocurrency.
4) Blockchain–
It’s a network with its own technologies. Each Cryptocurrency has its own set of users and underlying technology, each with its own set of characteristics and features.
It is similar to an account book or ledger system, which means that everyone can see who’s purchasing whatever coin (without identities or private information), and everyone can see where the money is going.
Want to know more about blockchain? Check out this comprehensive video on it.
Is cryptocurrency better than traditional fiat currencies?
Let us understand this with examples:
Humans regulate fiat currency through institutions such as the RBI, CB, and USFED.
-Assume that inflation rises due to a political issue, and the FD rate you expected to yield 10% now yields only 8%.
-If the money flow in the market or economy rises, or if the government decides to issue additional money, currencies can fall in value.
In a nutshell, it is motivated by human greed.
On the other hand, Crypto is decentralized and not controlled by humans. In addition, there is an open network, and the rules are set in stone.
Cryptocurrencies are not backed by people but by technology.
Would Cryptocurrency replace fiat currency in the near future?
When a new technology is introduced to the market, people see, listen, and grasp it.
It goes through an adoption cycle.
Small assets are prone to volatility. In Crypto, because there are few players right now, it is volatile. As a result, it is simple to alter them. Hence When Elon Musk tweets about bitcoin, the price fluctuates.
The cryptocurrency market is still in its infancy. As adoption rises and more people enter the picture, it will become harder to control and less volatile.
So, while it may take some time, the government will eventually have to embrace it.
As a result, the number of people adopting cryptocurrencies may rise, and it will coexist with INR.
To conclude:
People laughed at the Wright brothers as they attempted to fly a metallic bird. But today, Aircraft is the fastest mode of travel for us. Any new invention is difficult for humanity to comprehend. It will take time to adapt, but eventually, we will accept and celebrate it.
–Reference: Google search and Akshat Shrivastava
Thanks for the great article!