Why I believe in Cryptocurrency
What is Cryptocurrency?
As many of you might know, Cryptocurrency is essentially decentralised digital currencies that have gained popularity ever since the 2017 Bull Run, followed by the infamous crash.
Blockchain, the technology behind Cryptocurrency, has begun to revolutionise and disrupt industries, ranging from Financial Services to Supply Chain, and even Real Estate. Blockchain is one such type of Distributed Ledger Technology, which is decentralised in nature, eliminating the need for an intermediary to process, validate and authenticate transactions. Each party is represented by a ‘node’, whereby each node works directly with one another to check the validity of a transaction. Every transaction is encrypted by cryptography, recorded and grouped into timestamped blocks on the blockchain.
In essence, the disintermediary cryptocurrency provides, alongside immutable transactional details continues to attract the masses. With the increase in the need for data privacy and how controlled Centralised Finance (CeFi) in midst of the Gamestop/Robinhood saga, I believe there is a bright future ahead for cryptocurrency.
Bitcoin, the digital gold
In 2009, Satoshi Nakomoto, the unknown founder of Bitcoin, mined the genesis block (Block 0) of Bitcoin, generating the first Bitcoin, out of the limited 21 million. In recent years, analysts started to refer Bitcoin as the ‘digital gold’. Why?
To acquire Bitcoin, you have to go through a “mining” process — similar to that of golds. Even though the act of physically mining gold and “mining” Bitcoin is different, both require time and energy.
Bitcoin, though, has a halving cycle. This is where the daily supply of newly mined Bitcoin decreases by half after each cycle. As of now, Bitcoin has gone through its third halving cycle in May 2020, generating a daily supply of 900 Bitcoin. The next halving is expected to be in 2024.
As mentioned, Bitcoin has a limited amount of 21 million coins that will be ever be circulating in the network. Likewise, gold too will have a limited supply.
However, what differs Bitcoin from gold is this:
1)Trustless, immediate and direct transactions.
Being a digital blockchain asset, transacting Bitcoin can be done between 2 or more trustless parties, from the comfort of your home, at any time, anywhere, without the need for a government or bank to verify your transaction.
You can fractionalise Bitcoin to 1 Satoshi, a hundred millionth of 1 Bitcoin. It makes Bitcoin far more accessible for the general public to invest or acquire, as compared to gold.
Fiat vs Cryptocurrency
Fiat Money is a type of currency issued by the government and backed by a central authority such as a central bank. It is deemed by the government as a legal tender for monetary functions in the economy but, fiat money lacks intrinsic value. Fiat money used to be backed by physical commodity: gold. However, in the 1970s, US President, Richard Nixon, officially decoupled fiat money and gold.
Cryptocurrency, on the other hand, draws value from its native blockchain. In most cryptocurrency, there will always be a limited and fixed supply to ever circulate the network. Depending on the function of the cryptocurrency, how many coins/tokens/oracles there will ever be, you can draw a value from it.
Remember what happened in Venezuela? The inflation rate skyrocketed to 1,300,000% in 2018, with the price of a cup of coffee inflating by 380,000%. Why?
Venezuela was the world’s largest oil reserve. The value of Venezuela’s currency, the bolívar, was heavily dependent on oil exports — more than 90% of the country’s exports earnings came from oil. From 1999 to 2013, exports earnings allowed the government to combat poverty and inequality, leading to high expenditures by the government.
Then, in 2014, global oil prices dropped. A plummeting foreign demand sent Venezuala’s heavy dependent oil economy into crisis.
The value of the bolívar crashed. The amount of bolívar that was equivalent to USD$1 skyrocketed. The solution? Print more money.
As of now, Venezuela has one of the highest rates of cryptocurrency usage as a form of hedge against the country’s hyperinflation and to facilitate overseas transactions.
Cryptocurrency is going mainstream
Cryptocurrency is starting to be more accessible and has started to gain acceptance. Visa and Paypal now allow their customers to buy cryptocurrency and transact in cryptocurrency, with Mastercard also enabling crypto transactions in 2021.
Corporates, such as Tesla and Grayscale, start to buy Bitcoin, will there be a domino effect for other companies to follow in their footsteps? After the recent Bitcoin halving in 2020, Bitcoin is experiencing a supply shock. The daily amount of Bitcoin being mined is now less than the daily amount of Bitcoin being bought.
With the emergence of Ethereum, cryptocurrency became more than just a p2p transaction. Smart contracts and dApps built on the Ethereum network enabled innovative developers to create new platforms that continuously shock the world. Decentralised Finance (DeFi), Web3.0 and Non-Fungible Tokens (NFTs) have started to gain attention as it is truly is a game-changer.
Essentially, I believe cryptocurrency is here to stay. The true potential of blockchain or cryptocurrency has yet to be discovered, but we have evidently seen how such technology can disrupt industries, hedge against inflation and even, achieve true data privacy and management.
Different dApps and cryptocurrency are being built every day, potentially solving different real-world problems we currently face. The interoperability blockchain and cryptocurrency provide are astounding and I, personally can’t wait to see a global acceptance of cryptocurrency.