Some exchanges believe that smaller banks might do business with cryptocurrency exchanges. [Representative image: Shutterstock]
There's little doubt that blockchain is described as a transformative technology that could revolutionise a number of industries. It’s a field of study that has continued to evolve over the years.
Back in the 1990s, the Internet was probably the biggest innovation since the printing press in the development of human civilisation that has led to the democratisation of information. People from any nook and corner of the world were able to access information on every possible subject at the click of a button — and that too in real-time. The beauty of the Internet is that no one owns it, yet it has changed our lives today.
Now imagine cryptocurrency as the Internet 2.0. If we understand the basics of cryptocurrency and its four classifications, we would know that today apart from initial offering coins (ICOs), there are many types of blockchain investment products, such as decentralised finance to non-fungible tokens. Early investors in this future technology have not only earned high returns but have also supported the growth of crypto innovation, creating a new generation of digital currency millionaires. While the number of investors in this space has been steadily increasing, some are still sceptic and are still considering making their first crypto investments.
Let’s try and understand why people are investing in this digital asset and how it will democratise the finance sector the way the Internet did to information.
Borderless Transformational Technology
Cryptocurrency has the power to create a ‘borderless’ world of finance that is not controlled by any individual or entity, but by a community. Every country has its own banking rules and regulations and financial institutions are bound by geography. But cryptocurrency would help break this barrier in the future.
While the Internet allows for the transfer of information, blockchain enables the transfer of value without the need for any intermediaries. It has the power to revolutionise the financial industry by providing solutions for faster, transparent, and secure cross-border transaction of data via blockchain technology.
The possibility of this digital asset removing the geographical barriers is fast evolving as a reality, with over 100 million people worldwide speaking the same language called cryptocurrency. It will help create one inclusive global financial market. That is the power of cryptocurrency, and if we have realised the growth of the Internet, we can extrapolate and imagine the disruption this ‘financial internet’ can achieve. That's something fundamental for an investor to understand.
Globally Accepted, Easily Accessible
To invest in cryptocurrencies, all one needs is a smartphone with an Internet connection, and this ease of investment leads to a global adoption of this digital asset. Another reason cryptocurrency adoption is growing among masses worldwide is the validation it is getting from the global tech community and financial giants. starting from Tesla, IBM, PayPal, MasterCard among others.
Last year, Tesla bought $1.5 billion worth of Bitcoin, and PayPal allowed its 346 million users to access cryptocurrencies on its platform. Banking major Citi is contemplating entering into the cryptocurrency space as it sees a growing interest for this asset class from its clients. Over the years, these positive developments have led to increased adoption of cryptocurrencies and it’s a matter of time that we will see more institutional participation from India. For example, MicroStrategy a publicly traded business intelligence company, has invested over $2.24 billion in Bitcoin.
Bitcoin in particular has attracted investor attention due to its deflationary nature and is considered as a store of value. Bitcoin has a total supply of 21 million. Both Bitcoin and gold are seen as a hedge to protect fiat portfolio due to their inflation-beating properties. Bitcoin is labelled as digital gold by many, and is also seen as superior to gold in several respects. It offers a high degree of accessibility, allowing anyone to send and receive Bitcoin in a permission-less way.
Today, Bitcoin is slowly emerging as a mainstream investment class, especially among millennials. The youth are looking at cryptocurrency as an alternate investment option, and increasingly participating in this space. It derives value from its perceived scarcity and network effects that are built of trust. The more people enter the ecosystem, the more valuable cryptocurrency networks become. Positive regulation here is going to tremendously help the adoption of this digital asset. With regulation, and adoption, the cryptocurrency market will become mature and mainstreamed.
While the global Internet-using population is 4.6 billion, there are over 100 million people in the world who are holding some cryptocurrency asset. Now, if you look at the trends, in spite of it being highly volatile in the short term, Bitcoin has always given positive returns in the long term. That’s a good reason why people are investing in this space. Cryptocurrency is not a get-rich-quick scheme and people should carefully learn the market and then mindfully invest in these digital assets.
It's clear that there is an increasing need for us to focus on learning more about cryptocurrencies and the impact of this transformative technology. Today we see many traditional investors are warming up to the idea of this new asset class.
However, investors need to be mindful of the crypto-based assets and invest as per their risk appetite. Investors must do their research, look into projects of various tokens, know their founders, spend time analysing the market, and learn about the risks before they start investing.