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As a result of the growing pace of technological development, digital currencies are quickly establishing themselves in the global market. Being the flag bearer, cryptocurrency is the talk of the town and has been expanding at an increasing rate since 2015. As a result, cryptocurrency has developed a sizable fan base, many of whom view it as a profitable investment and even as the future.
In this blog, let’s learn about cryptocurrency and its two sides.
What is Cryptocurrency?
A digital asset called cryptocurrency is created and traded through the use of cryptography. It differs from fiat currency like metal coins or paper currency since it is made using complex computer codes.
- Unlike traditional money, it is basically intangible and cannot literally be handled or stored.
- It’s a virtual currency, a different type of payment system is developed with an encryption algorithm.
- It is governed by a decentralized network of data ledgers and blockchains rather than a single body.
Advantages of Cryptocurrency
- Keeps a check on inflation
Many currencies have seen a decrease in their value over time due to inflation. Most cryptocurrencies have a set amount when they are initially introduced. The amount of any coin is specified in the source code; for example, there were only 21 million Bitcoins published worldwide. Therefore, when demand rises, its value will also increase, keeping up with the market and preventing inflation.
The fact that cryptocurrencies are primarily decentralized is a crucial benefit. In contrast to fiat currencies, which the government regulates, cryptocurrencies are decentralized, which helps keep the currency monopoly neutral and in balance so that no one entity can control the movement and value of the coin.
- A fast way to transfer funds
Cryptocurrencies are considered the best option for a transaction and have consistently maintained that position. This is because they enable instantaneous domestic and international transactions. This is due to the fact that the verification process only takes a short time because there aren’t many obstacles to overcome.
Disadvantages of Cryptocurrency
- Decentralized but still operated by some organization
The decentralized nature of cryptocurrency is well-known. However, some currencies’ issuers and organizations continue to control the circulation and supply of some of these currencies. These holders have the power to prevent the coin’s price from significant fluctuations.
- The adverse impact of mining on the environment
Cryptocurrency mining is a very energy-intensive process requiring much computing and electricity consumption. For instance, Bitcoin; Bitcoin mining uses a lot of energy and sophisticated computers, and it cannot be done with standard computers.
- Susceptible to hacks
Cryptocurrencies are highly secure, but some exchanges are not. Most exchanges keep track of their wallet information to maintain users’ IDs. Hackers may be able to access numerous accounts by stealing this data. These hackers can quickly move funds from those accounts once they have access.
The Top-Down View
Despite all the on-ramps that have been put in place, crypto markets are still in their infancy from an institutional standpoint. An asset class is deemed immature by an institution if its markets are less liquid and fragmented than those of its established counterparts. They are therefore simpler to control and more difficult to manipulate.
On the other hand, from a business organization standpoint, cryptography’s permissionless and open source nature is another clear challenge that needs to be overcome. When looking at crypto from this angle, issues like “How do you construct walled gardens when the core technology is deliberately concerned with its circumvention?” naturally arise.
Regulators must also be on the leading edge of what is technically possible due to cryptocurrency, which is a more significant challenge than the role they have been playing up to this point. It’s challenging enough to keep up with financial innovation in established markets.
To create a finished, regulated financial product for the centralized, top-down market, businesses must first take an institutional client’s idea. This calls for the creation of tools for the continuing management of all those previously described, a systematic methodology, and the gathering and refining data.
The Bottom-Up View
In this view, it’s critical to recognize that you are dealing with a combination of concerns and preconceptions in contrast to much of what has come before. From a bottom-up perspective, however, even Bitcoin’s status as a bearer asset is a feature rather than a bug, contrary to what some institutional mindsets would have. Moreover, do not forget that Bitcoin was developed in response to the long-standing monetary excesses committed by central banks.
Decentralized systems inevitably grow more dispersed and haphazardly. Therefore, when the data provider looks at the landscape from the bottom up, there are many possibilities to see what high-quality data may bring to the table. These opportunities, however, are of a very different nature.
Conclusion: What does the future behold?
We are witnessing a fascinating evolutionary conflict between top-down and bottom-up approaches to consensus building and centralized versus decentralized methods of organization and justice. It is an evolutionary process because the two systems are evolving independently in a fuzzy environment where the definition of “best fit” is a shifting objective.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.