Satoshi Nakamoto’s attempt at building a decentralized peer to peer electronic cash system produced a byproduct which is now popularly known as Cryptocurrency. A cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets. This attempt led to the creation of the first and the most important digital currency till date ~ Bitcoin. Since then a number of such currencies have emerged in the market, the largest share being held by Bitcoin followed by Litecoin,Dash and Monero. These currencies have been in circulation since 2009 and a recent study by Cambridge Centre for Alternative Finance has estimated the number of active cryptocurrency users across the world to be 3million.
People have resorted to the use of these currencies due to various reasons, some of them want to exploit the advantage that comes with the anonymity of the transactions, and there are others who consider digital currency more secure and convenient to use than fiat currency. The use of the currency is free from government surveillance which also means that the transactions are pseudonymous, tax-free and do not require any execution permission. The cost of international transfers is minimal and the service is faster than service providers like Western Union. A market which might benefit the most from cryptocurrency is electricity and computer component manufacturing companies.
The number of coins that can be mined in most cryptocurrencies are limited and their decentralized nature constitutes a threat to the government and central banks as they can neither control the production of money nor regulate inflation or deflation rate which leads to politicization of money. This threat to the authority of governments has made some governments give them a legal status and are now looking into ways by which the regulation and transparency on use can be introduced. The reasons for the governments still not intervening in legalizing the use of cryptocurrency can be the total control the owner has over it, there are usually no middlemen involved which gives complete discretion over its use. This has given rise to unwanted cybercrimes because these transactions once made cannot be reversed which means that the buyer has no possibility of getting the money back and extortion of ransom by hackers. Each coin has a private access key which is available only to the owners and if this key is lost the coins can never ever be recovered.
The Bitcoin for example is a highly volatile cryptocurrency which makes it a great target for gains through speculation. The threat of collapse of fiat currency and the recent demonetization drive by PM Narendra Modi has made people look towards cryptocurrencies as an alternative to store their income in spite of all the disadvantages. Several people have also warned the users to only invest the amount they can afford to lose as cryptocurrency could be just a bubble waiting to burst. Digital currency is still new in the market and it is too early to say anything about its impact on the economy but it’s surely here to make a history.