Cryptocurrency: The Fintech Disruptor

Blockchains, sidechains, mining – terminologies in the underground world of cryptocurrency continue to accumulate for minutes. Although it sounds unreasonable to introduce new financial terms in an already complicated world of finance, cryptocurrencies offer a much-needed solution to one of the biggest annoyances in today’s money market – security of transaction in a digital world. Cryptocurrency is a definite and disruptive innovation in the fast-paced world of fin-tech, a relevant response to the need for a secure medium of exchange in the days of virtual transactions. In a time when business is just numbers and numbers, cryptocurrency offers to do exactly that!

In the most rudimentary form of the term, cryptocurrency is a proof of concept for an alternative virtual currency that promises secure and anonymous transactions through peer-to-peer online networks. The misnomer is more of a property rather than real currency. Unlike everyday money, cryptocurrency models operate without a central authority, as a decentralized digital mechanism. In a distributed cryptocurrency mechanism, money is issued, managed and approved by the peer collective community network – the ongoing activity of which is known as mining on a peer’s machine. Successful miners also receive coins in appreciation of their time and resources used. Once used, the transaction information is transmitted to a blockchain in the network under a public key, preventing each coin from being spent twice by the same user. The blockchain can be thought of as the cashier’s record. Coins are secured behind a password-protected digital wallet representing the user.

The supply of coins in the world of digital currency is predictable, free from manipulation, by every individual, organization, government entity and financial institution. The cryptocurrency system is known for its speed, as transaction activities on digital wallets can materialize funds in a matter of minutes, compared to the traditional banking system. It is also largely irreversible by design, further strengthening the idea of ​​anonymity and eliminating any other chance of returning the money to its original owner. Unfortunately, the salient features – speed, security and anonymity – have also made cryptocurrencies the mode of transaction for many illegal businesses.

Just like the money market in the real world, currency rates fluctuate in the digital currency ecosystem. Due to the finite amount of coins, as the demand for the coin increases, the coins inflate in value. Bitcoin is the largest and most successful cryptocurrency so far, with a market capitalization of $15.3 Billion, capturing 37.6% of the market and today the price of $8,997.31. Bitcoin hit the currency market in December 2017 to be traded at $19,783.21 per coin, before facing a sharp explosion in 2018. The fall is partly due to the rise of alternative digital currencies such as Ethereum , NPCcoin, Ripple, EOS, Litecoin and MintChip.

Due to the limits encoded in their supply, cryptocurrencies are considered to follow the same principles of economics as gold – the price is determined by limited supply and fluctuations in demand. With constant fluctuations in exchange rates, its sustainability remains to be seen. Consequently, investing in virtual currencies is more speculation at the moment than a daily money market.

In the wake of the industrial revolution, this digital currency is an indispensable part of technological disruption. From the point of view of a casual observer, this growth can seem exciting, threatening and mysterious all at once. While some economists remain skeptical, others see it as a lightning revolution of the monetary industry. Conservatively, digital currencies are going to displace about a quarter of national currencies in developed countries by 2030. This has already created a new asset class alongside the traditional global economy and a new set of investment vehicles will come from cryptofinance in the next few years. Recently, Bitcoin may have taken a dip to give spotlight to other cryptocurrencies. But this does not signal any crash of the cryptocurrency itself. While some financial advisers put the emphasis on the role of governments in the suppression of the underground world to regulate the central government mechanism, others insist on continuing the current free flow. The more popular cryptos are, the more scrutiny and regulation it attracts – a common paradox that bedevils the digital note and erodes the primary objective of its existence. However, the lack of intermediaries and oversight makes it remarkably attractive to investors and causes daily trading to change dramatically. Even the International Monetary Fund (IMF) fears that cryptocurrencies will replace central banks and international banking in the near future. After 2030, regular trade will be dominated by the crypto supply chain that offers less friction and more economic value between technology buyers and sellers.

If cryptocurrency aspires to become an essential part of the existing financial system, it will have to satisfy very divergent financial, regulatory and societal criteria. It will have to be hack-proof, consumer-friendly and highly safeguarded to offer its fundamental benefit to the mainstream monetary system. It should preserve the anonymity of users without being a channel for money laundering, tax evasion and Internet fraud. Since these are must-haves for the digital system, it will take a few more years to understand if the cryptocurrency will be able to compete with the real world currency in full swing. While it is likely to happen, the success of the crypto currency (or lack thereof) in facing the challenges will determine the fortune of the monetary system in the days ahead.