The Market for Cryptocurrencies

Considerable global interest has been seen in cryptocurrencies since 2009.

What are cryptocurrencies?

1.        Cryptocurrencies are digital currencies based on online platforms that use cryptography to allow peer-to-peer (P2P) direct transactions.

2.        In a peer-to-peer network, peers make a portion of their resources (like processing power, disk storage, or network bandwidth) directly available to other network participants without the need for central coordination by servers.

3.         Cryptocurrencies have the potential to provide formidable competition to established payment systems.

4.        Bitcoin-blockchain is the technology behind cryptocurrencies. It enables decentralized, secure and verifiable transactions.

5.        A bitcoin is a decentralized digital currency without a central bank or single administrator that can be sent from user-to-user on the peer-to-peer Bitcoin network without the need for intermediaries.

Which technology is used in cryptocurrency?

1.        A cryptocurrency is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions.

2.        Cryptocurrencies are based on a decentralized platform of the distributed ledger- transaction logs distributed across a network of participating computers.

3.        The online platform called “blockchain” was invented by an anonymous person named as Santoshi Nakamoto.

4.        The distributed digital ledger comprises a list of “blocks”, that records the history of every transaction in the network.

5.        The problem of “double spending” is also reduced.

6.        The design enables transparency.

7.        Bitcoin is the cryptocurrency generated in the blockchain.

8.        Only 21 million bitcoins can be mined. “Mining” is a record-keeping service done using computer processing power.

9.        Everyone in the ledger has a copy of the ledger and the transactions are verified and approved by global consensus. There is no need to trust a third party as in a traditional payment system, or a central authority as in the context of monetary systems.

 When did the market structure of cryptocurrencies evolve?

1.        There has been a meteoric rise in the market for cryptocurrencies over the past decade.

2.        Alternate cryptocurrencies like Ripple, Ethereum, Bitcoin Cash, Cardano, Litecoin and Stella have also increased rapidly.

3.        Bitcoin shares the largest market share among all the available cryptocurrencies.

4.        The price of bitcoin has shown extraordinary fluctuations over the past 5 years.

5.        Applications of blockchain have diversified beyond currency into payment infrastructure, smart contracts, and digital assets, etc.

Where is bitcoin lacking?

1.        Lack of stability in their price

2.        High energy consumption

3.        High and variable transaction costs

4.        Poor security

5.        Fraud at cryptocurrency exchanges

6.        Vulnerability to debasement

7.        Influence of miners.

How concerning is cryptocurrency?

1.        The emergence of cryptocurrency (bitcoin) and high volatility in bitcoin prices in recent times raise concerns about their ability to create a “new order”, that matches the technological progress that has driven the development of the suppliers of cryptocurrencies.

2.        Despite their potential to disrupt payment and monetary systems, there are several limitations to the technology as well. This has resulted in the distortion of price signals and security breaches.

3.        It is to be seen how governments and traditional payment systems adapt to such disruptive technologies in an increasingly digitalized world.