A short on crypto

By Jiya Bharti

In recent years, cryptocurrencies have proven to be on the rise, being a crucial addition into the financial sector. This could have an impact on traditional banking practices, altering the process of how we hold and transfer finances.

All in all, cryptocurrency, is a digital form of currency. It has emerged as a groundbreaking innovation in the realm of both finance and technology. One of the main elements of cryptocurrencies is blockchain technology, a decentralised ledger that records all transactions across a network of computers. This is revolutionary as unlike traditional currencies, which are centralised and governed by financial institutions or governments, cryptocurrencies operate on a peer-to-peer network, which allows for all sorts of basic, secure and transparent transactions without the need for anyone in the middle.  Blockchain, for me, was quite difficult to grasp, so here is an analogy I came across in a webinar.

In this analogy shared by Fabricio Santos of Cointelegraph on Medium, he tells us to envision the blockchain as a transparent glass box within a bank vault. Picture rows of these boxes, each with a clear glass front that allows everyone in the bank to peer inside and see the contents. However, despite this transparency, no one can physically access the items within the boxes.

When an individual wants to access a specific box, they're provided with a unique key made exclusively for that box. It's important to note that although they have a key, ownership of the box remains unchanged; they merely gain access to its contents.

In essence, a blockchain resembles this series of glass boxes—transparent and verifiable. Each box represents a block in the blockchain, with its contents visible to all participants. Moreover, Santos elaborates that when someone opens a crypto wallet, it's like creating a new address in the blockchain, and the private key serves as the means to "unlock" this address.

Now that is covered, let's get back to crypto itself. You may have heard cries about whether or not cryptocurrency is secure, however, blockchain has that covered, there is security along with privacy, which isn't exactly offered by traditional banking, highlighting the security part. Blockchain technology is not owned by a single entity which promotes more transparency for its users. Cryptocurrencies have been shaking up traditional finance systems in big ways. Instead of reliance on banks or governmental setups, they are all about decentralised transitions, which in simpler terms refers to them being peer-to-peer. There is no need for a middleman unlike banking transactions additionally removing intermediaries and associated fees, which actually makes it more efficient, due to it being faster and cheaper. The reduction of transaction fees translates to significant savings for customers and financial institutions. They are advantageous for time-sensitive transactions and provide real-time transaction visibility due to blockchain enhancing the transparency of this. Crypto if introduced correctly can increase economic growth and innovation.

Cryptocurrency may have its perks, but there are drawbacks to its use. It is crucial to understand the risks, before diving head-first into this new world. It's important for investors to recognise the possible volatility and absence of legal safeguards in cryptocurrency investments. Ultimately, although investing in cryptocurrency offers both advantages and risks, being aware of these potential drawbacks can assist in making a well-informed investment choice. Through, thorough research and careful evaluation of available options and associated risks, investors can enhance their ability to safeguard against potential losses. There is also the potential of market manipulation, this has been evident by the man himself, Elon Musk, who has proven that even in a transparent decentralised market, there are ways where the market can be manipulated to work in your favour.

Cryptocurrencies have also ignited discussions regarding their environmental footprint. The process of mining cryptocurrencies, particularly Bitcoin, consumes a significant amount of energy. There is a reliance on fossil fuels, for energy consumption. Thus, some critics argue that this energy consumption contributes to carbon emissions and can raise climate change concerns. Consequently, there is a growing movement within the cryptocurrency community to explore more sustainable alternatives, such as ‘proof of stake mechanisms’, which require considerably less energy than the traditional ‘proof of work’ approach. 

Addressing these environmental concerns would be necessary for the acceptance of cryptocurrencies on a global scale. As cryptocurrencies have continued to gain mainstream attention, regulatory scrutiny has become even more adamant. Governments around the world are grappling with how to regulate this rapidly evolving industry to ensure consumer protection, prevent illegal activities such as money laundering and terrorism financing, and maintain financial stability, which can be more likely here. Maintaining the correct checks and balances between remaining innovative and implementing necessary regulatory measures remains a significant challenge for financial institutions and governments. 

Despite these ongoing challenges, the potential of cryptocurrencies to revolutionise many aspects of the economy and the sociological benefits cannot be overlooked, making them a topic of ongoing debate and exploration in the financial world.

I had a lot of fun learning about crypto to write this. Hope you liked my short on crypto! New related articles are coming!