The Rise of Cryptocurrency

Rakesh Jhunjhunwala, indian investor and trader, said that he will never buy Bitcoin even for $5. But what is Bitcoin and what is cryptocurrency that has grabbed the attention of India’s top trader?

A cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. This means that there is no physical coin or bill- it’s all online. The two popular types of cryptocurrency are Bitcoin and Ethereum while new ones are constantly

Bitcoin was created by the mysterious and pseudonymous Satoshi Nakamoto in January 2009. Although Bitcoin is not a legal tender, ​the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.The wide growth and popularity of Bitcoin has triggered the launch of hundreds of cryptocurrencies. Amongst the more popular cryptocurrencies is Ether. Ether, like Bitcoin, is scarce digital money that you can use. Ether is controlled by its own open-source, blockchain-based, decentralized software platform called Ethereum which was launched in 2015

At the time of writing of this article, Bitcoin was worth $57,000 and ether was worth $1900. These two are expected to rise and reach $100,000 and $3000 respectively by the end of the year.Many wonder what is the reason behind their sudden and strong growth?

Bitcoin captured significant investor and media attention in April 2013 when it peaked at a record $266 per bitcoin after surging 10-fold in the preceding two months. Bitcoin sported a market value of over $2 billion at its peak, but a 50% plunge shortly thereafter sparked a raging debate about the future of cryptocurrencies in general and Bitcoin in particular

Some economic analysts predict a big change in crypto is forthcoming as institutional money enters the market. Moreover, there is the possibility that crypto will be floated on the Nasdaq, which would further add credibility to blockchain and its uses as an alternative to conventional currencies.

​Some predict that all that crypto needs is a verified exchange traded fund (ETF).​ An ETF would definitely make it easier for people to invest in Bitcoin, but there still needs to be the demand to want to invest in crypto, which might not automatically be generated with a fund.

The future outlook for bitcoin is the subject of much debate. While the financial media is proliferated by so-called crypto-evangelists, Harvard University Professor of Economics and Public Policy Kenneth Rogoff suggests that the “overwhelming sentiment” among crypto advocates is that the total “market capitalisation of cryptocurrencies could explode over the next five years, rising to $5–10 [trillion]

Some of the limitations that cryptocurrencies presently face — such as the fact that one’s digital fortune can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker — may be overcome in time through technological advances. What will be harder to surmount is the basic paradox that bedevils cryptocurrencies — the more popular they become, the more regulation and government scrutiny they are likely to attract, which erodes the fundamental premise for their existence.

While the number of merchants who accept cryptocurrencies has steadily increased, they are still very much in the minority. For cryptocurrencies to become more widely used, they have to first gain widespread acceptance among consumers. However, their relative complexity compared to conventional currencies will likely deter most people, except for the technologically adept.

Writer Armaan Aggarwal

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