“Bitcoin prices have fallen!!”
“Is Bitcoin legal?”
“What is this ‘Bitcoin’?”
Aye, the last question has been asked, innately rhetorical, by anyone who happens to catch a glimpse of recent headlines. Terms like ‘cryptocurency’, ‘hash rate’, ‘BTC’ and other pertinent jargon have been hurled mercilessly by the so-called experts and financial analysts with little or no comprehension to the idling bystander. So what is this phenomenon? The answer is slightly complex in its simplicity.
Cryptocurrency – The Concept:
Bitcoin is one of the first forms of cryptocurrency.
“A cryptocurrency is a digital or virtual currency that uses cryptography for security.”
In layman terms, it is a digital mean of ensuring a secure transaction (due to cryptography) without a third party interference such as government monitoring. This also comes with the added benefit of avoiding steep processing and transaction fees levied by financial institutions like banks.
The Good, the Bad & the Better:
Cryptocurrency gives its users a plethora of reasons to keep using it however, as is always, it does possess its share of pitfalls. Here are the enticing bits;
- Increased privacy for your transactions as the receiver does not receive your details as opposed to orthodox transactions and this comes with the added perk of being able to use a “fake account”. Moreover, no information is passed on to banks or the government thereby giving justice to the term “decentralized”.
- The transaction fees are petty or non-existent and the transfer is completed in a matter of minutes as well.
- The biggest catch, however, is the security it offers for cryptocurrency’s most salient feature is its military-grade cryptographic encryption.
Sounds perfect, doesn’t it? The other side of the coin is far from idyllic and these are some of the prime factors limiting its global use
- The biggest blot for cryptocurrency is that if the user forgets their account password or the device through which the transactions are handled is damaged, he/she runs the risk of losing their wallet and there are no provisions through which it can be later retrieved.
- There is certain lack of flexibility for a transaction once made cannot be reversed or cancelled and no mechanism exists to correct it.
- Although the popularity of cryptocurrency has skyrocketed in recent years, it is still not accepted by most organizations as means of exchange thereby making it less pragmatic to use in daily transactions. This inconvenience is caused primarily due to its decentralized nature.
Investing in Bitcoins – The Buzz:
Bitcoins are sought out as an investment and is one of the prime reasons for its popularity. It works on the same principles of currency appreciation and depreciation meanwhile maintaining fraternal similarities to the stock market in its core mechanism. It also possesses the notable feature of serving as a portal for individuals to hoard their savings for fear of instability in their native currencies primarily due to possibility of high inflation. The emergence of bitcoin billionaires like the Winklevoss twins have generated the sudden buzz around bitcoins and is the most poignant reason for the sudden interest by investors and the general public.
Perception of Bitcoins – The Dilemma:
The perception of bitcoins is somewhat muddled and quite polarizing due to its relative anonymity and sudden appearance in the limelight. Experts are sceptical about its viability and some even go far enough to claim that bitcoins have the potential and the propensity to be a Ponzi scheme. There have also been concerns of bitcoins being a speculative bubble (“speculative bubble is traded in an asset at a price or price range that strongly exceeds the asset’s intrinsic value” – Wikipedia), although with vicious contention, from authorities such as investment maestro Warren Buffet.
Bitcoin has its share of admirers as well primarily from free speech advocates. The relative anonymity and the right to privacy have been a matter of concern for the general public with governments keeping strict tabs on online activities thereby giving a justifiable incentive for the population to shift towards cryptocurrencies.
Governments and Central financial agencies have lashed out against bitcoins by pointing out that they are difficult to regulate and are hence not featured in economical and statistical studies which are vital components in formulating government policy. Although government perceptions have changed over time, some scepticism still weighs on such bodies. Moreover, the sale of illicit goods like drugs and black-market trade would be rampant and the repercussions to society are unfathomable.
So is bitcoin an unwanted annoyance or is it the pioneer of contemporary finance?
As exciting as the prospects seem, only time can confirm the viability of bitcoins. But one thing is blaringly clear: bitcoins are definitely a paradigm shift in terms of how transactions, trading, economics and finance are perceived and any disturbances in the bitcoin pool will definitely send ripples across all facets of globalized society.