Crypto-assets and their underlying technology—blockchain—have been around for over a decade. Bitcoin, the name, is now familiar to most but without knowledge of what it really is. And this is not without reason.
Blockchain was invented to enable the best-known cryptocurrency Bitcoin. However, with time, blockchain’s use cases are growing, and with it, there is growing interest around it. It is now being used in sectors as diverse as insurance to logistics and from gaming to even agriculture. Institutional investors, such as JP Morgan and Morgan Stanley, that were earlier sceptical about stepping into this sphere, are now observing the blockchain space with keen interest.
2020 will perhaps be considered a watershed moment for crypto-assets. Bitcoin, for instance, soared more than 300% in 2020. Having cleared the COVID-19 test (as well as two global recessions earlier), at the time of writing, one unit of Bitcoin was trading at $54,500 globally. Further establishing its legitimacy is the fact that publicly traded companies like Tesla Motors, MicroStrategy and Square purchased Bitcoins worth almost $4 billion in total.
In fact, you can now buy a Tesla vehicle using Bitcoin!
Crypto is only just beginning to grow
To gauge just how big the crypto space is, one needs to only examine the market capitalisation of the first cryptocurrency – Bitcoin. Bitcoin has a market cap of over $1 trillion. Over the weekend of 12 March 2020, this crypto-asset registered its all-time high level of $61,556. At this time, last year, Bitcoin was trading at approximately $5,000.
The primary advantage of using crypto is decentralised finance. In case of central bank currencies, all transactions performed are under the purview of a system, within a geographical boundary. Crypto transactions eliminate the need for traditional institutions such as banks, brokerages, or exchanges.
Crypto-analysts, meanwhile, continue to remain bullish, with some even suggesting that Bitcoin could well hover near the $100,000 mark by end 2021. In fact, many have labelled it as the digital equivalent of gold. Bitcoin’s close contender is Ethereum – a blockchain network that holds great promise considering its platform forms the basis for scores of other blockchain startups. And then—more recently—there is also Cardano that many are calling “the Ethereum killer”.
There has been a flurry of activity, one that can also be attributed to the pandemic. Many first-time traders hopped onto the crypto bandwagon during the lockdown. And with large conglomerates such as Tesla endorsing the technology, crypto usage could well become mainstream in the not-too-distant future.
While Bitcoin and Ethereum have become synonymous with the crypto space, there are actually some 8,400 (and growing) cryptocurrencies .
Why is crypto adoption growing?
The primary advantage of using crypto is decentralised finance or DeFi. In case of central bank currencies, all transactions performed are under the purview of a system, within a geographical boundary. Crypto transactions eliminate the need for traditional institutions such as banks, brokerages, or exchanges. Rather, it uses smart contracts. The majority of DeFi platforms are offered in the form of decentralised apps, or dapps. The dapps, in turn, are powered by a series of smart contracts that enable automation of financial transactions. As a result, transactions become faster, more efficient and transfer fees are significantly lesser in comparison to legacy institutions. Furthermore, since the process is computer-code controlled, there is no possibility of biases. DeFi also ensures immunity from market shocks and economic downturns.
Cryptocurrencies have cleared the COVID-19 test as well as two global recessions earlier. Further establishing its legitimacy is the fact that publicly traded companies like Tesla Motors, MicroStrategy and Square purchased Bitcoins worth almost $4 billion in total.
When a purchase is made using cryptocurrency, the blockchain ledger shows the purchase, the amount, and when the transaction was made. However, it does not reveal the source, meaning both user and location remain unknown. There is complete autonomy ensured.
This is precisely why governments in many countries view crypto assets as a serious threat. They fear it will be used for all the wrong reasons. But come to think of it, even fiat currency has/is used for wrong activities.
Uncertainty and acceptance in equal measure
Certain governments—mostly in the west—are regulating this space and bringing crypto-assets under the tax purview. Sweden has a pilot project underway to explore introduction of a digital krona, the digital currency backed by its central bank. It will run on an identical blockchain such as the one powering Bitcoin. In fact, Sweden is on track to becoming the first country to become completely cashless by 2023 and the digital currency is meant to accelerate efforts in that direction.
Denmark permits holding and trading of crypto-assets. It requires crypto traders to inform the Danish Tax Agency or Skattestyrelsen of profits or losses made in cryptocurrency trades. This information must be provided regardless of whether crypto trades were made within or outside of Denmark.
Meanwhile, there is speculation that India’s central government is proposing an outright cryptocurrency ban, even though its highest court lifted a two-year ban on trading crypto in March 2020. However, it is mulling the introduction of its own digital currency. And in a recent positive development, the Indian government has asked all companies to disclose their trading and investments in crypto. China, meanwhile, prohibits trading of crypto-assets but it permits citizens to own them. And in the US, high schools in certain states are considering the inclusion of crypto classes in their academic curriculum. Amid the uncertainty, what is certain is that the popularity of cryptocurrencies is growing worldwide. Its acceptance globally is only a matter of time.
Zabir Rahman
Zabir is an associate editor at Unravel and drives research projects at StoneBench, with a focus on projects relating to media, digitalisation and technological adoption.
