What is Cryptocurrency?
Cryptocurrency is a digital asset or unit of value, exchanged between peers without the need of a third-party, such as banks. It enables consumers to connect and process transactions without sharing the identities or relying on a centralized institution to process or receive the payment.
The Cryptocurrencies are created by using advanced encryption techniques, termed as Cryptography. The network itself consists of several chains of computers that run a Cryptocurrency node, providing security and legitimacy to the system. The node relays the transaction and is one of the fundamental aspects of any Cryptocurrency. They prevent duplication of a transaction and various other attacks that can lead to fraud and error in the Blockchain ecosystem.
With the introduction of Bitcoin as the first Cryptocurrency, the growth of Cryptocurrencies, have taken a leap, now boasting of a million-dollar capital market. With the total number of Cryptos and digital assets amounting to more than 2000, it is not pointless to say that the future of decentralized finance looks attractive. The Cryptocurrencies have its most exposure in the year 2017, primarily due to 1000% increase in total market capitalization and the introduction of over 600 Cryptocurrency projects.
Also dubbed as Year of the Cryptocurrency, investors, and institutions experienced massive capital growth and users flocking to buy digital assets, leading to an increase in investor appetite and institutional coverage.
The Rise of Cryptocurrency and Global Acceptance
Fifteen years back, Cryptocurrency was an academic concept existing mostly in theories, unknown to the general population. However, this all changed in 2009, with the creation of Bitcoin by Satoshis Nakamoto, who developed a peer to peer, decentralized electronic system for payment. As of today, the majority of the global population is aware of Cryptocurrencies but still is not familiar with how the system works.
After the year 2016, Cryptocurrencies and its mining gained traction in global media and among governments around the world. It made headlines in mainstream news and continues to be the backbone of several financial institutions such as Coinbase, Coin payments, and BitPay.
Economic analyst predicts that such a significant change in Crypto signals a forthcoming of more considerable capital inflows from institutional investors. Besides, there is also a possibility that Cryptocurrencies will be floated on NASDAQ, further adding to the Blockchain credibility as an alternative to traditional fiats and stocks.
The addition of Bitcoin futures on CBOE and CME, back in 2017 also added to the trust of investors, and an Exchange Traded Fund (ETF) will further make it easier for people to invest in Bitcoin.
Additionally, many companies are testing Blockchain technology and digital wallets to integrate them into their business and provide customers with alternative payment options. Financial service providers are, in particular, looking at the Cryptocurrency models and Blockchain to ascertain their security and feasibility in a cost-effective manner.
Bitcoin is a decentralized currency and enables the function of currency issuance, processing transaction and sending payment via peer to peer Blockchain technology.
While this system free Bitcoin from government or any institutional manipulation, the disadvantage is that no central authority to ensure that operations run smoothly. Bitcoins are created via a process called mining that requires a powerful computer to solve complex algorithms. Once a transaction is validated, the miner receives an incentive in the form of Bitcoin which he can sell in the exchanges.
These factors make Bitcoin and similar other Cryptocurrencies, very different from fiat, which are usually inflationary.
Fiat is backed by the government and is issued by a central authority, typically the State Bank of the respective country. Although the bank limits the amount of paper currency in circulation, there is no maximum limit to the amount of its issuance, which is why fiat currencies are termed as inflationary and gradually lose value over time. In contrast, Bitcoin is deflationary, and have a maximum supply of 21 million, with each Bitcoin valued as per the market forces.
The future and Likely Growth of Cryptocurrencies
Although it is hard to predict the future of every Cryptocurrency, one thing is for sure, if the Bitcoin is successful in the future, so is the overall Crypto market. The future of Bitcoin and Cryptocurrency as a whole is a subject of much debate. Bitcoin started with few cents and is currently worth over $5000.
Similarly, its rival Ethereum has also gained a lot of fame in recent years and has become a hotspot for Initial Coin Offerings (ICO). The analysts believe that the growth of Cryptocurrency is linked to several factors including economic expansion, access to exchanges, attractive ROI and the innovation in Blockchain technology.
However, there are also some doubts regarding Cryptocurrencies, especially when it comes to regulatory requirements. Bitcoin was initially designed as a peer to peer electronic system so money can be sent anonymously without the need of a third party. The increasing acceptance and growth of Cryptocurrencies have forced the government to introduced compulsory KYC and AML policies for exchanges and institutions dealing in digital assets.
Similarly, the use of Cryptocurrencies in cybercrimes such as Ransomeware attacks, increased price volatility, and uncertainty has caused doubts and fear for many investors. In fact, one of the primary reasons for investors to keep away from Cryptocurrency investments is the lack of regulation. Besides, with some countries banning Bitcoin and Cryptocurrencies, the crypto market has proven to be highly sensitive to government measures, in contrast to traditional stocks and forex exchange markets.
In conclusion, the future and growth of Cryptocurrencies look appealing. The governments around the world are making regulations to include digital currencies either as a money or asset in the law and are taxing capital gains on such investments. With new startups, ICOs and innovations around Blockchain, Cryptocurrencies are not going to stabilize but will also create diversity to investors. As Bitcoin takes the financial markets by storm, institutional investors are likely to enter the market with improved security and ease to trade on Crypto exchanges.
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