Cryptocurrency – a new way to spend
At the dawn of a new economy, the 21st century Unicorn termed as ‘Cryptocurrency’ is a side product of Digital cash. While it is being accepted by the overwhelming community of people; even the bankers, consultants, developers, scientists are ignorant of its features.
In simple words, Cryptocurrency is a virtual currency, most notably Bitcoin, a decentralized digital blockchain cash system. It is based on Peer-to-peer network technology. Let’s understand its monetary properties.
Controlled supply of tokens.
The supply of tokens or Bitcoins gradually reduces with time which means the future monetary supply of cryptocurrency can be roughly calculated in the present!
It’s a Bearer and not a Debt.
The numbers appearing on the ledgers in traditional bank accounts are nothing but debts whereas Cryptocurrencies represent themselves and are as hard as gold coins.
Having understood the basics of cryptocurrency, now the question in debate is with the rise of cryptocurrency, will we ever be paying our debt with it, or creating a new form of debt – crypto-debt? Let’s discuss.
The International Monetary Fund (IMF), led by crypto friendly Christine Lagarde, published a global debt report which highlighted a massive ticking debt bombing number! — $182 trillion worth of pay debt with Cryptocurrency exists worldwide.
The situation is present because the governments and central banks kept printing additional money to pull the economy out of recession. To handle this burst of the inflated bubble, Cryptocurrencies, more particularly Bitcoins or ‘Digital Gold’ and Ether were invented.
Main flaws in Central Banking:
- Lack of transparency
- Politicization of money supply due to centralization
Features of Cryptocurrency:
- Rapidly evolving Crypto debt markets are transparent, open and most importantly, decentralized.
- Generate yield
With its feature of censorship-resistant borrowing from a Central bank, lending the assets or earning interest to secure the blockchain, these systems promise to give investors new opportunities to generate yield.
Nominal Transfer cost
If the conventional money is converted into Crypto-coin and then transacted using this crypto coin, it will reduce the pressure of inflation.
Easy secured maintenance
Crypto money does not require any additional expenses for maintaining security unlike the processing fee in transferring the conventional money.
Myths about cyber currencies:
Every coin has two faces. This is sarcastically true with Bitcoins as well. Along with the advance features of Cryptocurrency, there are some vital myths that need to be clarified in its context.
Every holder wants to earn interest on their crypto-assets, creating a large market imbalance and unattractive interest rates.
Decentralized debt markets still cannot outsmart before they reach the maturity and sophistication of the existing financial system. They have flaws in both price discovery and liquidity. Interest rates vary widely across each market and orders are relegated to order books.
The cybersecurity breaches in modern digital technology are costing investors huge amounts which may not be recoverable once fallen into the hands of hackers.
The vital mitigation measures in virtual currencies are not available like in traditional banking sectors.
Volatile nature and lack of inherent value
Bitcoin is not without its problems added to their lack of inherent value. The Cryptocurrency needs to be linked directly to the tangible and intangible assets to overcome its extent of volatility.
As the Bitcoin or Ether ecosystem develops and price discovery takes shape, Crypto-debt markets will play an increasing role in helping the ecosystem grow, allocate risk, and offset protocol inflation. As would be the case with anything new, to decide whether the Cryptocurrency is boon or a bane depends upon the multi-altitudes it might take in different directions of the emerging technology.