In ancient times, every person could have their ‘own currency’ for transactions wherein one could trade a live fowl in exchange for a bag of grain. We called it the barter system, but in today’s time, where we buy against the paper currency, isn’t this a barter too?
Now, we’re way past paper money. Instead, digital currency is the talk of the town; Bitcoin has the world following its peaks and falls; Ethereum Token is legit, and how! But, before understanding digital currency, we need to understand its innate concept.
Cryptocurrency is not the first step of a financial revolution. That was brought on by offline banking transactions, thanks to credit and debit cards. The term ‘credit card’ was first written in 1887 by an American author Mr. Edward Bellamy in his famous utopian novel, Looking Backward. Later, from the early 19th century to the 1930s, people started using charge coins and other similar items in various shapes and sizes. The merchants widely accepted charge coin in those days as a simple and fast means to copy the merchant’s account number to the sales slips. Debit cards made their debut in the late 1980s, creating another form of digital currency.
New-age digital currencies, i.e., cryptocurrencies are developed on various blockchains. The number of live blockchains is growing every day at an ever-increasing pace. As of 2022, there are more than 18,000 active cryptocurrencies based on Coin base and Token base blockchains, with several hundred more non-crypto currency blockchains such as DeFi, NFT, and Metaverse.
Paper Money No More
Now let’s understand the fundamentals of fiat currency (paper currency) and cryptocurrency (digital currency). Fiat currency is managed by authorities on a centralized network backed up by sovereign governmental authorities, whereas crypto is a decentralized blockchain on public ledgers.
Coin-based crypto lives and grows on speculation and market trends and is unregulated, whereas tokenized crypto is based on serious business, with tangible assets and strict regulation. We accept fiat currency as our general daily trading token, governed by centralized banks and issued by sovereign authorities. However, cryptocurrencies are like a harkening to ancient times, a public currency, managed democratically. It’s the reason why many merchants and traders are currently creating the right ecosystem to accept cryptocurrency.
Does money grow on the trees? Today, we can affirm that it does (blockchain branches). Anyone can create a cryptocurrency and use it as their ‘currency of choice’ provided the merchant agrees to accept it, just like in old times. The value of cryptocurrencies is determined based on their demand and supply, especially the value of coin-based crypto. Tokenized crypto value depends on the business growth and ecosystem behind it.
Cryptocurrency finds more acceptance amongst millennials or Gen Y when compared to Gen-X, which is our parent’s generation. Nowadays, many of us invest in cryptocurrency, but do we know which are coin-based and which are token-based? To do so, we can check the portfolio of the cryptocurrency on coinmarketcap.com and learn about its behavior. There, you can find hundreds of success stories among the thousands of cryptocurrencies that have been created till date and more to come.
A good market tip is not to chase only the popular cryptocurrencies but rather to pursue those which have more to offer as a return on investment. If you asked me what kind of cryptocurrencies I invest in, I would only opt for tokenized-based cryptocurrencies. They are highly regulated and backed by real businesses and real assets. Having said that, I also look into the people behind the cryptocurrency as well, for this is a space where expertise holds leverage.
Subject To Risk?
Here you would point out, isn’t it risky to invest in cryptocurrency? Frankly, every investment comes with its own pros and cons and calculated risk. What we can do to minimize risk is to get informed.
Tokenized crypto is essentially issued to raise funds or crowdfunding, so investing in them is akin to buying IPOs in stock markets. The funds raised are later utilized in various kinds of business. But, of course, as demand and innovation go, some businesses do lose and some businesses make a profit, so you want to assess how the cryptocurrency issuer minimizes the risk and what kind of ecosystem has been created behind the currency.
A lesser-known fact is that an ecosystem is significant for every currency, be it fiat currency or cryptocurrency. The merchant’s acceptance is vital to create a genuine ecosystem and a pool of people using the preferred Cryptocurrencies. There are many crypto exchanges in the digital world handling these cryptocurrencies.
Even with all said and done, the legal aspect of crypto still keeps us on the fence. It’s important to remember that fiat currencies are issued by sovereign governments. They have also signified the currencies of the future in the form of medium terms notes (MTNs), so there is no way that a state or central government would easily accept cryptocurrency as a legal tender. It is also harder to impose taxation on cryptocurrencies, and the ecosystem for fiat currency is stronger than that of newly minted cryptocurrency.
The reason why cryptocurrency faces such resistance from administrative and central banking forces is rooted in its decentralization. If my choice of cryptocurrency is accepted by any individual merchant, then approval of a governing body ceases to be relevant as it is private affair, but governments which we elect to run our nations find it exceedingly difficult to tax the Cryptocurrencies users on these transactions, which hurts the country’s ecosystem.
As for my individual opinion, cryptocurrency should be accepted as a parallel or alternate currency. To increase its legitimacy and acceptance, the governments can impose a system of income tax or sales tax on it, similar to that on fiat currency transactions, a model of which was recently seen in India’s budget, though the 30% tax on each transaction wasn’t clearly explained – would it be on total amount or on the capital gain? With changing trends and a growing cry for autonomy and decentralization, it is in the best interest of governments to catch up with the mindset of their populace and embrace digital currency as the next step in the financial revolution which is accordance with the Industry 4.0 Revolution where IoT and Fintech combine to create stronger economic growth.
Dato Sheikh Jamal can be reached at https://www.linkedin.com/in/dsj