A cryptocurrency, unlike paper currency, is a digital asset and not a physical medium of exchange but takes the form of ‘coins’ or tokens. They are decentralised networks and based on blockchain technology. Their existence is bound to a distributed and decentralised ledger. Since it is protected by cryptography, it is almost impossible to imitate. Another characteristic of cryptocurrencies is that they are theoretically exempt from government control or manipulation as any central authority does not issue them. In 2021, there have been high levels of price fluctuation of cryptocurrencies like Bitcoin in the market. Numerous people have either lost millions or have gained millions on such trades. There is an upcoming question pertaining to the future of cryptocurrency in the next five years. The industry grew from $923 million to $6.6billion by May 2021.
Advantages of Cryptocurrency
1. The transfer of funds between two parties is more effortless for cryptocurrencies as the transfer is direct and not via any third party like a bank or a credit card company.
2. All transfers are secured by using public or private keys and incentive systems like Proof of Work or Proof of Stake.
3. The transfers involve minimal processing fees as compared to the high charges of financial institutions for wire transfers.
4. Inflation does not devalue the currency as they are launched with a fixed value, and due to the limited availability, an increase in demand would pull up its value to keep up with the market.
5. Its decentralised nature does not allow anyone monopoly over it; hence no organisation or person can determine its flow or value, thereby keeping it secure and stable.
Disadvantages of Cryptocurrency
1. Since the transactions are semi-anonymous in nature, the transparency is compromised, and it becomes difficult to track these aspects at large.
2. Due to the decentralised structure of the cryptocurrency, it is difficult to regulate, and there are high levels of volatility in the market.
3. Cryptocurrency also has several drawbacks pertaining to volatility that cannot be managed because it does not have an underlying value or asset like derivatives. This makes it even more arduous for the investors and other stakeholders to carry on with their investing and trading strategies.
4. There is also a problem of scalability when it comes to cryptocurrency. The adoption of such currencies can cause significant disruptions in the monetary supply in the country.
Future of Cryptocurrency
As it is seen that there are several advantages and disadvantages pertaining to the usage of cryptocurrency, several regulatory bodies are trying to mitigate the risks while investing and trading in such a sector. It has been noticed that the Chair of Federal Reserve, Mr Jerome Powell, has shown interest in the regulation of cryptocurrency through the Securities and Exchange Commission. This shows the need to develop a digital currency in the future, but it has to be regulated with proper norms and guidelines. There has been legislation passed on cryptocurrency that would help in reducing tax evasion and would boost the regulation as well.
The technological revolution is brought about by cryptocurrency, and this is being promoted by the governments as well. Companies are taking payments in cryptocurrencies that are allowing the market to grow even more than required. Blockchain technology has been perceived as extremely safe as it is not hacked before. The only way to hack such technology is through the wallets that are linked to the system. But it is expected to be one of the most secured networks across the world.
There are several expectations of the future with cryptocurrency. The value of bitcoin is expected to surpass $100,000 per unit. The commodity markets will also turn into a completely digital form. This would have been easier for trading and investing. The exchanges will completely be decentralised and digitalised. This is viable only with the help of cryptocurrency. The need for liquidity is more important for the companies than profits. It is so because of the liquidity crisis companies are not being able to meet their current liabilities. Consumers can easily access finance in the future, and this would promote microfinance. This also enhances financial inclusion in several countries around the globe. It is expected that cryptocurrency will also solve the problem of tax evasion as all the transactions are recorded on the digital platform, and they cannot be evaded at any cost. There is a concept emerging that is called the emergence of the bitcoin-denominated yield curve. There are nations that are trading crypto weapons.
In the Indian context, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, shows the future of virtual coin trade in the country. This shows the future growth of the industry at large.
Therefore, it is observed that there is future growth in the industry at large. It is seen that security, protection, and safety is essential for investors. A considerable amount of government regulation in several countries has been identified. But it is also observed that when government regulations are imposed, the level of corruption and taxes increases accordingly. Finally, in the Indian context, it can be stated that in the next five years, the economy is not yet ready for cryptocurrency because processes are prolonged. The economy requires an efficient regulatory body that can quickly adapt to the digital networks and enhance transparency. Institutions like the Reserve Bank of India are sceptical about bringing cryptocurrency into the Indian money market. It is so because of the volatility in the prices of the instruments. Thus, the future of cryptocurrency in India is yet to be decided by the government and other regulatory bodies.
Disclaimer – Angel One Limited does not endorse investment and trade in cryptocurrencies. This article is only for education and information purposes.