The Evolution of Trading
The trading sector has encountered great revolution as new means of exchanges are discovered with the development of modern technology. Before, the monetary currency was adopted barter trade was the main activity in which food was exchanged with other goods including animals and ornaments. However, this kind of trade was cumbersome and full of disadvantages and an alternative had to be adopted. Precious stones were then adopted, followed by coin money, and paper money, which is the most commonly used in the current era. With the advancement technology, a new form of currency has been developed to meet the needs of the modern generation with the help of the internet. Cryptocurrency, although developed by unknown people is the newest means of exchange created digitally for supporting online transactions according to research (Meiklejohn, et al. 128). One example of the digital currency is the Bitcoin, which is traded over the internet created through complex mathematical formulas via computers by miners. Cryptocurreny is a virtual currency traded over the internet and although it may lead to illegal activities and have other limitations, it provides a better way of saving and investing to traders this can replace the main currency.
The Rise of Cryptocurrency
Cryptocurrency is created and managed by use of encrypted technology, which is also called cryptography and includes the Bitcoin, litecoin, Skycoin, and Ripple among others. The Bitcoin is the major digital currency introduced in 2009 opening a platform for cryptocurrency trade to the world (Narayanan 6). The currency did very well and in 2003, its value went up to close to $266 per bitcoin revealing that the means of exchange was reliable (Narayanan 7). Trading activities with virtual currencies are done online by using computers to solve complex algorithms and crunch numbers. The value of the cryptocurrency is volatile unlike the fiat currency, which is mainly controlled and regulated by the government. The value of the cryptocurrency such as the Skycoin is dependent on the amount the investors are ready to trade in at any time (Gandal, and Halaburda web). The online currency was discovered accidentally from a system of stopping email spamming in 1922 (Michael, 58). In time, the currency went through many changes through incorporation of blockchains to facilitate transactions and ensure ledgers remain active all the time. The Bitcoin was the first virtual currency created by an unknown inventor and discover in 2009 by a developer called Satoshi Nakamoto who later disappeared (Meiklejohn et al. 129). Block chains refer to ledger systems that facilitate cryptocurrency as well as promote legitimacy of the system, which works by tracking every transaction from buyers to sellers and vice versa. This ensures that traders can exchange their currencies with confidence without fear of losing their investments (Peck 26). Some countries have already allowed trading of cryptocurrencies thus; it is likely for this means of exchange to surpass the traditional currencies. Investor must own personal computers and serve as ledger keepers as well as auditors for every transaction that occurs since every blockchain bears ledger file unique to the user. Transactions are done in a public ledger, which helps in reducing fraud and promoting the authenticity of the every exchange (Peck 26). Duplication is not possible as operators cannot copy the coins traded and no banking fees are required since no financial institutions are involved. A small fee is always paid to the servers to support the network of the miners, the online conversational exchanges, and mining pools. Cyrptocurrencies can be mined and traded by any interested person as long as they own strong computers since the process involves giving commands to solve intense mathematical problems.
Concerns and Limitations of Cryptocurrency
On the other had the credibility of cryptocurrecy is questionable due to its complex way of creation and other limitations that make it unpopular to a large population. Cryptocurrencies may lead to illegal activities such as money laundering, drug peddling, weapon procurement, as well as funding of terrorism activities (Meiklejohn, et al. 128). There decentralized nature and anonymity of transactions makes the virtual currency a target by criminals interested in illegal activities. The future of the cryptocurrency is therefore, threatened, and is likely to collapse due to increasing scrutiny by authorities (Rafferty web). The government and other regulatory bodies have raised concerns on this matter for security reasons. Some of the bodies include the Financial Crimes Enforcement Network (FinCEN), the FBI, and the Homeland Security defining some rules that should help defines virtual currency trading (Gandal and Halaburda web). In this case there may be introduction of strict rules on the use of cryptocurrency, which is likely to make it difficult for interested individuals to trade freely. Emergency of many virtual currencies such as the Litecoin, Ripple, MintChip can make the field quite competitive (Seetharaman, Saravanan, Patwa and Mehta 230). In addition, losses may occur due to the possible misfortunes, which may include computer crash that can delete somebody's investment leading to complete loss. This is a major disadvantage of the online currency since it can lead to complete loss of an entire investment. Hackers are always focused on the advancement in technology and the fortunes that are likely to emerge. Therefore, virtual currency technology is not an exception to challenges thus there is a great threat to the cryptocurrecy. In addition, the complicated process of developing cryptocurrency makes it difficult for many people to adopt it thus a few consumers only accept it. People trading it are few in the market and although it is a good investment, it may become less popular since many people are likely to reject (Seetharaman, Saravanan, Patwa and Mehta 230). The conventional currency that involves paper money and bank transactions is still very popular and for the cryptocurrency to surpass it there is need for it to satisfy the divergence criteria required for the mainstream financial system. For instance, to be accepted in systems such as the stock exchange and other transactions, the digital currency has to be widely accepted especially in several countries. However, the complex mathematical formulae, which are quite difficult to understand, may make the consumers shy away from accepting this currency. Centralizing the virtual currency is possible but it should also maintain its ability to ensure user anonymity and be easy to tax by the government. Cryptocurrencies are likely to be subjected to heavy regulation as the authorities try to improve its credibility (Extance 21). However, some countries have already banned use of cryptocurrency in their territories revealing that the success this kind of exchange is greatly challenged. The countries include South Korea, which banned ICOS and cryptocurrency and ICOs and anonymous trading while others such as Japan have opted to regulate the virtual currency trade (Extance 21). The currency may face a lot of challenges in future if nations start regulating its use.
The Advantages of Cryptocurrency
Cryptocurrency has several advantages over the traditional currencies and is likely to replace them in the future. One of the major benefit of investing in digital currencies is that it s similar to investing in bonds and stocks (Bresett 6). The trade goes through cycles due to volatility of the currency since it is not regulated by authorities. The cryptocurrency also disrupts the banking system and offers an alternative way of saving and investing money with minimal charges. The fact that there are not intermediaries' makes many people to have great interest as it reduces losses due to levies on transactions. In addition, the cryptocurrency experiences less friction between buyers and sellers thus can be a preferable trade to people that want to do business with minimum interference (Extance 21). People do not need to visit banking institutions to make payment since only a strong personal computer is required. The cryptocurrencies are becoming popular especially the Bitcoin that reached a value of $10,000 on November 28 2017 according to Rafferty (web). Several influential companies such as eBay, Microsoft, Subway, and Expedia accept use of digital currency as an alternative payment, which shows that in future several trading organizations are likely to join the trade. Some governments such as the Swiss have accepted the currency especially the Bitcoin for payments of tax while others such as Dubai have expressed interest in becoming a blockchain city (Osborne web). The countries that have always shown interest is big economies thus may influence other major economies such as the US to value digital currencies Bresett. In addition, several blockchains exist proving that virtual currencies have gained support from many traders (Bresett, 8). The idea of cyrptocurrencies a global concept trading can take place in any country making its control difficult for regulators. This will allow many people to trade freely without the need to engage the authorities on matters of transactions. Some financial bodies such as the Falcon Bank intend to offer virtual currency-linked bank accounts to allow interested investors to have greater trust in this kind of payment system. The idea is to build more trust with investors and make sure that he exchanges are secure. Cryptocurrencies are secure since people d not need to carry cash money around when buying items or trading (Nakamoto web). The traditional currency is portable but prone to theft especially when being transferred to banks for safety keeping. More so, criminals invade banks cryptocurrency works to promote an open payment system without requiring intermediaries that are sometimes very costly to deal with (Peck 27). Online transactions are made easy through use of the e-wallet that facilitate storing, tracking, as well as spending digital money. Again, no currency conversions are required since the virtual currencies are peer to-peer and the coins are therefore frictionless allowing people to access their balances with only a password.
The Future of Cryptocurrency
Cryptocurreny is a virtual currency traded over the internet and although it may lead to illegal activities and have other limitations, it provides a better way of saving and investing to traders this can replace the main currency. Human beings have used different methods of trade exchanges starting from the barter trade before the use of coins was adopted. Currently, virtual currencies have become common and more acceptable as a means of payment with assistance of the internet. The emergence of cryptocurrencies such as Bitcoins, Skycoins, and Likecoins among others leads to provision of an immediate and reliable means of exchange of goods and services via the internet. Crypocurrency has several advantages over the Fiat system, which is highly regulated by authorities. The virtual currency is personalized and does not require use of intermediaries such as banks. However, some limitations exist such as use of complex mathematical formulae; can be used for criminal purposes such as funding terrorism, and high volatility. Despite the weakness of the virtual currency, the system has proven effective in ensuring legitimacy as well as tracking of transactions from sender to recipients, investors, with great benefits.
Works Cited
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