Cryptocurrencies and Blockchain

Modern technologies have affected every part of our life and most importantly our incomes and the methods to earn them. It has also affected the way we look at technology. With a device and internet connectivity, people make billions sitting at home. One of the most traded and most recent developments in this arena is Cryptocurrency. The question people now ask is, is it the future of currency? Is it the new gold in money? Is it safe to invest in virtual money? Are we heading to an advanced system or a financial disaster?

Crypto means data encryption and cryptocurrencies are a virtual form of money that exists entirely on the internet. Another very distinctive characteristic of this is that they are not issued or managed by any government or central agency. At present, there are more than 4000 cryptocurrencies in the market and the principal reason for this is the underlying Blockchain technology. Anyone can create a cryptocurrency, as it is open-source. The very commonly known cryptocurrencies are Bitcoin, Ethereum, Litecoin, Dogecoin, and many others.

Blockchain is a technology conceptualised by Satoshi Nakamoto, in 2008 as a record-keeping mechanism without a need for a central server or authority. Its purpose is to provide the permissions to record and distribute the digital information, without altering or editing it. It collects information in groups, also called blocks.

Blockchain technology utilizes a distributed peer-peer network, and everyone is allowed to join. When a new user enters the network, it gets the full copy of the blockchain. Each computer is called a node. When any user creates a new block, it is sent to all the users on the network. When each node verifies the block and makes sure that it hasn't been altered. After complete checking, each node adds this block to their blockchain.

This process makes blockchain technology very reliable and versatile. It helps certify and verify the identities of the interested parties and further remove double records and accelerate transactions.

Cryptocurrency has become popular in the last 3 years and is considered a risky investment by many. With big celebrities like Elon Musk, Bill Gates, Snoop Dogg, Mike Tyson, Amitabh Bachchan, etc the investment has significantly increased and there is an astronomical increase in the price per currency.

In March 2019, the average price of Bitcoin was at $3924 which increased to $6884 in March 2020 and $54887 in March 2021, indicating a 75% growth in FY20 and 697% growth in FY21. In the case of Ethereum, the average price was at $135 in March 2019 which increased to $160 in March 2020 and $1735 in March 2021, indicating an 18% growth in FY20 and 980% growth in FY21.

Unlike shares, commodities and currencies, cryptos are highly volatile in prices. For example, on Jan 27, 2021, Bitcoin’s price was at $30552, which on February 19, 2021, reached $56029, implying a more than $25K increase within three weeks. In the case of

Monthly Average prices of Bitcoin from 1 March 2019 to 30 Jun 2021,

Source:- Coinmarket cap

Litecoin, the price first rose from $223 on April 25 to $386 on May 9, 2021, to fall to $143 on May 23, 2021, shrinking to less than half of the value. Such ups and downs in the values of cryptos are quite common in virtual currencies. The major reason for this is the lack of any intervening party and limited supply.

Daily closing prices of Litecoin from 1 April 2021 to 31 May 2021,

Source:- Coinmarket cap

Cryptocurrencies are only legalized in 82 countries and the rest either partially restrict them or have made them illegal to use, which is still a hindrance in their trading and universal acceptance. Experts believe that the volatility of cryptos can reduce if there is an increase in the adoption and development of derivatives and investment products. On the brighter side, several governments and institutions are planning to utilize blockchain technology for financial and payment solutions, while several others also plan to launch regulated digital currencies, for example, Bitcoin by the United Kingdom. Hence, we can expect, with certainty, that the future of money in cryptocurrencies and other digital counterparts.