Will Cryptocurrency Redesign Global Financial System?
Cryptocurrency has been around for more than a decade but the craze about it is recent. Over the past two years, several people have become cryptocurrency millionaires after their investment jumped manifold as the market showed an unprecedented surge. This attracted the attention of more investors, who had money but did not want to invest in stocks given the market sentiment due to the pandemic. They saw the very high returns of cryptocurrency and joined the bandwagon. The market crashed steeply in May this year, after four months of continuous bull run, drowning many into losses. Still, the lure is so high that many more have entered the speculative market.
Riding on the positive sentiment lately, the cryptocurrency market has recovered from its low and showing early signs of another wild run. The question now is: Will cryptocurrency upend the existing financial system and create a new one?
What works for cryptocurrencies
Between 2015 and 2019, a lot of cryptocurrency coins and blockchain projects emerged. Today, Bitcoin, the largest and oldest of all cryptocurrencies, has a market cap of $851 billion – and there are more than 11,000 crypto coins in circulation. Some countries recently decided to allow cryptocurrency and El Salvador even became the first country to classify Bitcoin as legal currency. The proponents of cryptocurrency say it is inclusive as it is decentralised, free from a country's central bank's oversight.
Also, more companies are now warming up to the idea of accepting payments in cryptocurrency, opening a new exchange system for consumers. It is also faster to operate. Finally, though risky, it promises unmatched returns to investors.
What works against cryptocurrencies
Still, there are genuine questions about how this technology can replace the existing one. The biggest issue here is that blockchain technology is far more complex than an average user would want to indulge. Another problem is the underlying asset for any cryptocurrency coin is the fiat currency (i.e national currencies like rupee or dollar). Despite its massive and rapid success, it is far, far behind the fiat currency in terms of the user base.
There could arise pressure from users to make it widely acceptable as a form of exchange or legal currency, but given its instability, it will take some time to get a clearer picture.