You think cryptocurrency is not real. But how real is traditional money anyway?

You think cryptocurrency is not real. But how real is traditional money anyway?

The world of cryptocurrency is new to all of us. What was born out of the idea of defiance, however, is something that’s not.

What’s the word on the street?

Decentralized digital currencies also known as cryptocurrencies, and in particular crypto currencies like Bitcoin, have piqued the attention of scores of people across the globe, dividing them into either believers or non-believers. But what seems to be a revolutionary method of transacting has actually been here all along. The Internet today is the main source of information and all means of communication. From paying your bills to moving crores of rupees, the internet has indeed come a long way. Our entire society communicates with Internet-based technologies, as well as it is a channel for digital media payments. In the modern financial system there are new tools, virtual forms, cryptocurrencies. In this regard, we can say that cryptocurrencies are a new stage for the development of payment and settlement systems. However, cryptocurrencies are proving to be a powerful tool for the development of the modern financial system.

However, this poses another new threat. Our brains are so used to the idea of someone else controlling money for us, that unregulated ‘new’ forms of moving money seem to be scary, not just for us as users, but for financial systems that have been ‘owners’ of our money. This raises a question of cryptocurrencies as a new revolutionary technology and as a threat to the traditional fiat system.

So what’s the road ahead like for us?

The basis for the cryptocurrency system exists with everyone and no one. The process behind its creation determines its initial price. At the initial stage an initial unit of virtual money price is equal to the cost of work spent on its implementation. Thus was born the first crypto currency, Bitcoin.
But this leads us to the next question on stability of the currency itself. Bitcoin has showcased an uneven growth rate in the period up to the year 2013, followed by a significant jump in 2017 that of the rate in 7 times its original value. 5 of times, this was due to the increase in demand for this cryptocurrency and its growing uses in our daily lives. This led to a global adoption at a scale that was beyond the ordinary. Just like several countries (especially in Europe where it is possible to pay for training at the master's degree in digital currency, in the state of Kentucky the pay was allowed to be in bitcoins and so on).

But what about the downsides? With everything new and shiny, adoption is easy. Then slowly, the product loses its sheen. Just as in the case of all financial instruments, for example, virtual currencies are sometimes the only means of payment when buying and selling certain commodities. With the Bitcoin not being able to be traced back to its original buyer or seller, this is a growing method for payments against stolen credit card numbers, personal credentials for authentication when accessing the online accounts, such as PayPal and eBay. On another dark side, virtual currencies are used for arms trafficking, falling down the pit of data, privacy and you, as an ordinary user.

But with any technological innovation, the risk of corruption of the idea and the product is pertinent. In the traditional economic theory, money is supposed to have 3 primary functions: provide a medium of exchange; store value; and a unit of account. Now the question simply lies, how does your Bitcoin fall into this?

Let’s solve for the 1st case - Bitcoin is a medium of exchange. The only difference? This is anonymous. Now, how easy is it for it to function as a medium of exchange? Bitcoin without going through a third party, such as a crypto exchange, can be logistically challenging for those without a background in computer science. Most traders therefore use an exchange or a virtual wallet handled by a third party. But this means that the currency is no longer trustless, and Bitcoin holders have historically lost large sums of money to careless or fraudulent third parties. Remember the theft at the Mt. Gox Bitcoin exchange in 2013.

Now let’s move on to the second use case. The usefulness of Bitcoin as a store of value is limited by its volatility. But Bitcoin is no short of a showstopper in volatility. If we look at the price of Bitcoin, it has considerably risen in the few years of its existence which makes it potentially a valuable asset in the future.

The future price is inherently unpredictable, but undeniable, probably not.

So what does the future hold?

Well, nobody really knows. But if we look at the inherent change in our perception of a medium that probably gives us value for the products and services being bought and sold, Bitcoin is sure in the running just as the US Dollar, or even to some extent, the shiny yellow metal, gold.

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