By Anshia Dutta
Among the many technological advancements and innovations that have taken place in the last decade, one that has seemed to catch everybody’s attention is cryptocurrency. In fact, it wouldn’t be wrong to say that the buzzwords of 2017 were cryptocurrency and Bitcoin.
What exactly is cryptocurrency?
Cryptocurrency is a digital currency that uses encryption to secure the processes involved in generating units and conducting transactions. The most endearing feature of cryptocurrency is its organicity, its immunity to government interference and manipulation. Cryptocurrencies are growing at an alarming rate with each passing day. Currently, there are over 1384 cryptocurrencies in the market with the most popular one being Bitcoin, followed by Ethereum, Ripple, Bitcoin Cash, Cardano, and Litecoin. The primary reason for its popularity is that it makes possible the transfer of funds between two parties with minimal processing fees, thus eliminating the need to pay steep fees charged by financial institutions for such transfers. It operates using the peer-to-peer blockchain technology, that is, the system itself maintains the record of every transaction as well as the tracking issuance of the currency.
Bitcoin was not traded on any exchanges in 2009, the very first year of its existence. Its highest price in 2010 was just $0.39. In April 2013, its price declined from $266 to around $50. Then, its price started to recover and in October 2013, one bitcoin was worth $200, crossing $1000 a month later. After then, there were many fluctuations in the market and its price finally stood at $780 in November 2016. The commencement of 2017 saw a hike in the bitcoin prices with its value being $1150 in January 2017. Its prices kept on soaring each month and one bitcoin was worth $17900 on December 15, 2017. However, on December 22, 2017, it lost one-third of its value and dropped to $13800.
Are the governments and financial institutions really against cryptocurrencies?
To begin with, cryptocurrency-based exchanges are irreversible in nature. It means that once funds have been transferred to the other party, the transaction cannot be reversed. Secondly, the virtual currency is characterised by the property of anonymity which means that it is not necessarily possible to connect the real-world identities of users with the addresses they use. Thirdly, it is a global network where the transactions are carried out instantly and confirmed in just a couple of minutes. Also, cryptocurrency can be used for trade by anybody and anywhere. It is based on just a software that needs to be downloaded, and once installed, it can be used to send bitcoins and other currencies. In addition to cryptocurrencies eliminating the need of a middleman for transferring funds which in traditional commerce is a bank, all the aforementioned transactional properties also serve as a threat to the government and banks in the sense that they can no longer control the monetary transactions of the citizens.
On top of this, it is said that the supply of bitcoin is limited and it will reach its final number in 2140. The supply is controlled by a schedule written in the code of the digital currency which means that the supply of the same can be roughly calculated at any given point in time. Also, unlike the fiat money in the bank accounts which represent debts, cryptocurrencies represent money as hard as coins of gold. Since the government can not affect the supply of the currency, cryptocurrencies act as an obstacle to the government’s targeting a particular inflation or deflation rate by changing the monetary supply. Not only this, since the users are pseudonymous, the government has its concerns over the use of cryptocurrency for criminal activities and money laundering.
Government’s and financial sector’s experimentation with blockchain technology
Blockchain can potentially improve the defence against cyber attacks, prevent fraudulent activities through consensus, and detect data tampering which is why now even government agencies are looking closely at the potential of blockchain technology to build systems that will protect the military from mass-hacking campaigns, counterintelligence, other hostile attacks on the system, and provide secure communications.
An August 2017 Washington Article suggested that the Pentagon (headquarters of the US Department of Defence) and NATO (North Atlantic Treaty Organization) have been working in secrecy for some time now to determine how to utilise blockchain efficiently. There has also been news that DARPA (Defence Advanced Research Projects Agency) has been interested in developing a blockchain-based messaging application. Also, they have been working on creating ‘unhackable’ code for use with blockchain which will help them expose hackers who attack them.
The blockchain is being adopted in the Indian economy as well. Indian banks have developed in-house Proof-of-Concept projects to experiment with the technology. According to a PwC report, 56 percent of Indian firms are likely to make blockchain a part of their core businesses. The use of blockchain by the Indian government for land dealings is the broader mandate of e-governance in India. Rahul Matthan, a partner at Trilegal said, “Land records, like any other registry in India, are centralised and maintained in the office of the sub-registrar. It is possible that the contents of these papers could be altered or tampered. If land documents are stored on a distributed ledger, it will be impossible to tamper with them. The opportunity to build a layer of technology on top of an existing registry is immense. It allows one to perform tasks like audits with ease and speed. Since personal data can be encrypted, the identity of the buyer or the seller can be kept confidential. The future of property transactions lies in smart contracts, which are automated and don’t require an intermediary.”
The government of Andhra Pradesh has already started working towards integrating its own e-governance program and securing its assets on blockchain by the end of 2019. It collaborated with Swiss startup WISEKey in 2017 to explore blockchain Proofs of Concept and also implemented blockchain pilot projects in the departments of Land Records and Transport.
Not only the governments, but the financial sector is also stepping up to adopt this technology. YES Bank, India’s fifth largest private sector bank, implemented a multi-nodal blockchain transaction to digitise vendor financing for Bajaj Electricals. Shekhar Bajaj, CMD of Bajaj Electricals, said in a statement, “The blockchain solution by YES BANK enables us to do timely processing of vendor payments through vendor financing from the bank without physical documents and manual intervention. It also enables our vendor and us to track the status of the transactions in real time.”
Future of cryptocurrencies
The market of cryptocurrencies is expanding like wildfire. With each passing day, many new cryptocurrencies are emerging, and on the other hand, many are also dying. Some people are becoming wealthier while others are losing money. JP Morgan’s CEO, Jamie Dimon said about cryptocurrencies, “It’s just not going to happen, you’re wasting your time. This is my personal opinion. There will be no real non-controlled currency in the world. There’s no government that’s going to put up with it for long.” Contradictory to what he said, people all over the world including the governments and many financial institutions are adopting blockchain technology in its operations or software.
Now the real questions are whether bitcoins and other decentralised currencies will replace banks and if monetary policies adopted by the government will have any effect on the economy in the long run. It seems like only time can answer the same.
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