Understanding the Impact of Cryptocurrency and Bitcoin
Over the last few years, the term cryptocurrency has rapidly gained visibility in the public eye. In today's day and age, cryptocurrency is fast becoming essential to people who value privacy, and for whom the idea of using cryptography to control the creation and distribution of money does not sound too far-fetched.
Today, cryptocurrency, led by Bitcoin, Litcoin, Ether, etc. are taking the financial world by storm as more people invest and buy these currencies. At the same time, there is still widespread confusion and bias which retracts for the overall effectiveness of Cryptocurrency. Educating users about such alternative forms of currency is extremely important given its volatile nature. In this article, we will try to provide a holistic outlook towards Cryptocurrency and how it's affecting the world we know today.
What Is a Cryptocurrency?
Cryptocurrency is designed from the ground up to take advantage of the internet and how it works. Instead of relying on traditional financial institutions who verify and guarantee your transactions, cryptocurrency transactions are verified by the user's computers logged into the currency's network. Since the currency is protected and encrypted, it becomes impossible to increase the money supply over a predefined algorithmic rate. All users are aware of the algorithmic rate. Therefore, since each algorithm has a roof limit, no cryptocurrency can be produced or "mined" beyond that.
Since Cryptocurrency is completely in the cloud, it does not attain a physical form but have a digital value, and can be used for digital equivalent of cash in a steadily increasing number of retailers and other businesses. Bitcoin was the first cryptocurrency that was ever created, and while there is a small fee for every cryptocurrency transaction, it is still considerably lesser than the usual credit card processing fees.
Why Use Cryptocurrency?
Bitcoin is the most popular cryptocurrency which has seen a massive success. There are other cryptocurrencies such as Ripple, Litecoin, Peercoin, etc. for people to transact in. But for every successful cryptocurrency, there are others which have died a slow death because no one bothered to use them, and a cryptocurrency is only as strong as its users. Some of the salient features of Cryptocurrency include -
- Cryptocurrency can be converted into other forms of currency and deposited into user's accounts at a lightning speed
- Most Cryptocurrency can be transacted anonymously, and can be used as discreet online cash anywhere in the world. Users therefore do not have to pay for any currency conversion fees
- While not 100% immune from theft, Cryptocurrency is generally safe to use and difficult for malicious hackers to break
- Bitcoin and other Cryptocurrency can be saved offline either in a "paper" wallet or on a removable storage hard drive which can be disconnected from the internet when not in use
Bitcoin - A Glimpse into the Future
2016 was the year of Bitcoin, and saw this digital currency grow almost 79% as compared to Russia's Ruble and Brazil's Real, the world's foremost hard currencies. As a result, it emerged as a better bet for investors while beating foreign exchange trade, stock exchange trade, and commodity contracts. There are many reasons why the impact of Bitcoin is exceptionally relevant today, and why the Cryptocurrency of 2018 is now here to stay. These include -
Many governments around the world are implementing isolationist policies which restrict remittances made from other countries or vice versa either by making the charges too high or by writing new regulations. This fear of not being able to send money to family members and others is driving more people towards digital Cryptocurrency, chief amongst them being Bitcoin.
Control Over Capital
Many sovereign currencies and their usage outside of their home country are being regulated and restricted to an extent, thereby driving the demand for Bitcoin. For example, the Chinese government recently made it tougher for people as well as businesses to spend the nation's currency overseas, thereby trapping liquidity. As a result, options such as Bitcoin have gained immense popularity in China.
Today, more consumers are using Bitcoins than ever before, and that is because more legitimate businesses and companies have started accepting them as a form of payment. Today, online shoppers and investors are using bitcoins regularly, and 2016 saw 1.1 million bitcoin wallets being added and used.
Although unfortunate, digital Cryptocurrency such as Bitcoin are now also seeing more usage because of the crackdown on corruption in many countries. Both India and Venezuela banned their highest denomination and still-circulating bank notes in order to make it tougher to pay bribes and make accumulated black money useless. But that also boosted the demand for Bitcoins in such countries, enabling them to send and receive cash without having to answer to the authorities.
The Real-world Impact of Virtual Money
While Cryptocurrency and its usage is at an all-time high, so are the misconceptions about it. Most people still seem to ask - Why use Bitcoin? Since such currencies use different algorithms and are traded in unconventional ways, it is important to lookout for some important characteristics before investing in Bitcoin or others of its ilk. This includes -
Daily Trading Volume and Overall Market Capitalization
Market capitalization of a cryptocurrency is the total worth of all its forms which are currently in circulation. New forms of Cryptocurrency might not be widely available, and therefore might not have high market capitalization. Similar to this is the daily trading volume, and a cryptocurrency which has higher trading volume than the others is considered more successful.
Each cryptocurrency has its own verification method. One of the most common methods for verification is called "Proof of Work". Herein, to verify a transaction, a computer has to spend time and computing power to solve difficult mathematical problems. On the other hand, "Proof of Stake" method allows users with the largest share of the cryptocurrency to verify the transactions, which requires far less computing power.
Acceptance of Cryptocurrency
Unless a cryptocurrency is not accepted by major retailers or other businesses that you deal with, it doesn't stand much use. That is why Bitcoin still remains the most popular form of digital currency, since its reach is widespread and is accepted by many businesses and retailers alike.
Toning Down the Frenzy - Challenges Ahead for Bitcoin
While Bitcoin's astronomical growth cannot be understated, Cryptocurrency in general have several challenges to meet before finding universal acceptance. These challenges include -
Safety and Reliability
Purely based on its digital form, Bitcoin and other types of Cryptocurrencies are nowadays the favorite mode of payment for both hackers and criminals because of the air of anonymity it lends. This instantly makes the general populace weary of using it. In 2014, Mt. Gox, the largest Bitcoin exchange was hacked and robbed of almost $69 million, thereby bankrupting the whole exchange. While the people who lost money have now been paid back, it still leaves a lot of people wary of the same thing happening again.
The Debate on Bitcoin Scalability
The cryptocurrency community is up in arms over how the blockchain will be upgraded for future users. As the time and fees required for verifying a transaction climbs to record highs, more businesses are having a tough time accepting Bitcoins for payment. In early 2017, more than 50 companies came together to speed up transactions, but till now the results have not yet been felt. As a result, more users might start using normal modes of currency to overcome such blockchain hassles.
The Rise of the Rivals
Today, Bitcoin is not the only game in town, and while its value has increased by almost 100% since the beginning of 2016, its share of the digital currency pile is rapidly reducing owing to almost 700 different competitors. Its market share has reduced to 50% from 85% a year before, a sign of the times to come.
Unrecognized by Governments
Most of the general populace doesn't understand Bitcoins, and nor does most of the world's governments. The cost of gaining a license to set up cryptocurrency companies is sky-high, and there are no regulations in sight which might make it easier for people looking to invest into them. The U.S. Securities and Exchange Commission recently rejected a proposal by Bitcoin to run a publicly traded fund based on the digital currency, which in turn led to a big plummet in Bitcoin's shares.
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