In today’s digital age, the way we live and work has changed, and so has money. Account-based electronic money has been around for decades. The new entrant in the monetary ecosystem is a token-based digital currency called cryptocurrency.
Cryptocurrencies have come a long way since 2009, when Satoshi Nakamoto published the bitcoin article “A peer to peer electronic payment system. The article spawned a transformative new terminology, Blockchain. Today” hui, we have different flavors of cryptocurrencies – stablecoins (backed by fiat currency), Central Bank Digital Currencies (a direct responsibility on the central bank) and even coins.
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In 2019, Facebook announced âLibraâ (now renamed âDiemâ), a new âstablecoinâ digital currency backed by sovereign currency. Unlike Bitcoin, stablecoins are relatively stable because they are pegged to fiat money. Facebook’s announcement forced central banks to take a close look at digital currencies. Central banks, in all geographies, are conducting experiments to understand how central bank digital currency can make existing payment systems efficient and serve as a tool for the targeted implementation of monetary and fiscal policy. It has changed the talk about cryptocurrencies and interest in digital currencies has skyrocketed over the past two months.
Bitcoin vs Ether: The Rise of Crypto
The value of cryptocurrencies has almost tripled since 2017 and 2021 has seen an unprecedented rally. Bitcoin prices, which account for roughly two-thirds of the total crypto market value, led to the bull run in the first quarter of 2021. The Bitcoin bull run was also slowed by Elon Musk’s decision to buying 1.5 billion bitcoins and accepting bitcoins as a payment method to buy Tesla cars.
In recent times, Bitcoin prices have been at the mercy of Musk’s tweets and his coin quirks and fancies as Ethereum prices have risen due to the increase in the number of applications and miscellaneous services built on top of the Ethereum ecosystem. The Ethereum network is more scalable than bitcoin. With the migration from the energy-intensive proof of work consensus model to proof of stake, ethereum has become a business and environmentally friendly protocol.
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Recent reports from the Bank for International Settlements suggest that over 80% of central banks around the world are exploring central bank digital currencies (CBDCs) and that few implementations are powered by solutions built on the Ethereum network. . Recently, Consensys launched CBDC as a Service sandbox for banks, central banks, banks, payment service providers and institutional actors to design and build digital currency settlement infrastructure. This sandbox is powered by the Consensys Quorum network which allows businesses to use Ethereum for enterprise-level blockchain applications.
Today, more than $ 13 billion in value is stranded in Ethereum smart contracts, propelling the decentralized finance (DeFi) revolution. DeFi, also known as Open Finance, has started a new movement towards the democratization of ï¬ nancial services powered by distributed ledger technology.
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Ethereum prices are expected to move based on the value it brings to payments, the core banking system, and businesses, while Bitcoin continues to experience sharp swings in the short term. On the other hand, meme coins, such as Dogecoins, are more of a fad than a phenomenon and the longevity of these coins is one to guess. However, this does not exclude the emergence of such pieces in the immediate future.
Cryptocurrency in India
The cryptocurrency market will see some upheaval until there is a global consensus on anti-money laundering regulations, KYC, taxation, etc. The Reserve Bank Of India has unofficially sent notices to all banks not to engage with cryptocurrency entities. Despite the regulatory vacuum in the country and fears of an impending ban, more newbies and even people in the 60s are entering the crypto market. As an asset class, crypto would continue to gain the attention of investors, both retail and institutional. As a business imperative, cryptocurrency exchanges should start working towards a model of self-regulation to remove malicious elements and aggressively educate investors on best practices in crypto investing.
Anyone wishing to enter the crypto market should take a long-term view of the market, recognize the risks associated with volatility, and assess digital currencies on merit. Be a fair judge of your risk appetite, and don’t invest wisely in digital currencies until you’ve done your research.
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Check out various cryptocurrency communities, forums on Reddit, Telegram, Twitter, etc. to acclimatize you to the nuances and vocabulary of the crypto world. It is important to resist FOMO (Fear of Missing Out) so that you do not lose your hard earned money. Be aware of the tax implications to avoid unnecessary legal wrangling. Cryptocurrency investments are do not a way to make money fast. It’s more of a marathon than a sprint.
About the Author: Sharat Chandra is an author, speaker, blockchain evangelist, and educator. He has advised numerous blockchain startups in identity management and the FinTech space. He is blockchain expert at the IET Future Tech Panel and chapter chair of GBA India. The opinions expressed here are those of the author alone.