As I start writing the second part of the blog, focusing on cryptocurrency, let me start with a disclaimer that I do not want to influence your investment decisions in any way. Neither do I endorse, nor am I opposing the cryptocurrency trade, but would request all of you to follow the government regulations.

For those who are still not aware of cryptocurrency, it is a virtual currency that is traded digitally and secured by cryptography, making it nearly impossible to counterfeit. The name is derived from the fact that all of its transactions are highly encrypted, making the exchanges highly secure. Many cryptocurrencies use blockchain technology to decentralize their trading. We also must keep in mind that cryptocurrencies are generally not issued by any central authority. This makes it theoretically immune to government interference or regulations.

The trading pattern of cryptocurrencies is that of direct transfer between two parties, without the need for a trusted third-party intermediary, thus saving in transaction costs, but also increasing the risk typical of zero regulation.

Broadly, there are three ways of obtaining cryptocurrencies. They can be bought on an exchange, received as payment for goods or services, or one can virtually “mine” them. Mining is a process that cryptocurrencies commonly use to generate new coins and verify new transactions, through decentralized networks of computers around the world to verify and secure blockchains. Users can add their mining computers onto the network to aid the process. In return for their contribution to processing power, the computers on the network are rewarded with new coins.

While the first decentralized cryptocurrency, viz. the Bitcoin, was first released as open-source software in 2009, the year 2021 saw a defining moment where it come under tremendous focus with more than 9,000 other cryptocurrencies coming into the marketplace, of which more than 70 had a market capitalization exceeding $1 billion.

Trading in cryptocurrencies is gaining popularity as it involves cheaper and faster money transfers. The decentralized systems used do not have a single point of failure and can be well assumed as immune to total collapse. However, we also need to be cautious about its extreme price volatility and high energy consumption for mining activities. Typically, as a rule, a high-speed and high-volatility currency might be a concern for those who are not financially secure in life, but that is a universal observation and not specific only to cryptocurrencies.

From what we have been reading, the lack of regulations through any centralized authority has started witnessing a lot of use of cryptocurrencies in criminal activities. This makes me think that very soon we shall find regulations coming in to monitor the trade. How and when it comes and whether it facilitates or hampers the speed will be interesting to watch.