Love it or hate it, but you can’t ignore cryptocurrencies. Monetary historians point out that even Nobel laureate economist Milton Friedman predicted the emergence of cryptocurrencies when, in 1999, he said: “The only thing missing but soon to be developed is reliable e-cash, a method by which on the Internet you can transfer funds from A to B without them knowing each other. ” Not that he was talking about Bitcoin, but many see it as the first mention of a digital currency by an economist of his reputation and someone who spoke positively about it.
Globally, interest in the future of cryptocurrencies, which are based on Web3 or blockchain technology, has grown enormously. There are two schools of thought that fiercely defend their antagonistic stances on cryptocurrency. On the one hand, there are technology theorists and companies who have conceptualized it and want to replace it with fiat currencies. “Cryptocurrencies were designed to be unrelated global commons. They were based on the maxim of distributive justice. The first generation of blockchain had serious monetary ambitions. They focused on creating a currency with a strong deflationary touch, “says A Damodaran, a professor at the Indian Institute of Management, Bangalore, on the ideals with which cryptocurrencies were developed. On the other hand, these idealists opposed to central banks, who see cryptocurrency questioning their sovereign rights over the money supply in the economy.
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The origin of Bitcoin is attributed to a white paper written by “Satoshi Nakamoto” in 2008. This simple statement hides two curious facts that have made opponents suspicious of the whole concept. First, no one knows who Satoshi Nakamoto is. He could be an individual or a group of intelligent people who came up with a financial idea that captured the imagination, first, of young technicians and then of young investors. Second, the white paper was written at a time when the existing global financial system seemed to have crashed. Many people believe that the two events are connected and the idea of replacing fiat money with a seemingly open source model has emerged more from the need to try a new financial model than from some benevolent anarcho-capitalists taking on inflation. central bankers.
Whatever the reason for its rise, the reality now is that every year that passes a huge amount of money is poured out by venture capitalists in the cryptocurrency sector, so much so that even traditional investors who were initially opposed to the sector have changed their minds. The Oracle of Omaha Warren Buffet, who once called cryptocurrencies “rat poison” recently bought $ 1 billion worth of shares in a cryptocurrency-centric digital bank. Buffett Berkshire Hathaway’s firm has made public its cryptocurrency investment with a regulatory filing with the United States Securities and Exchange Commission, revealing a $ 1 billion share purchase in Nubank, a Brazil-based digital bank. If the global crypto industry needed a lot of approval for legitimacy, this is it.
Buffet’s shift in cryptocurrency stance is symptomatic of the shift in the economy introduced by Web3, which is threatening the order of the old world. From being accepted by companies to pay salaries in different parts of the world to countries like El Salvador which have made Bitcoin one of its many fiat currencies, cryptocurrencies have come a long way and are here to stay for a long time.
While estimates vary, there appear to be around 6,700 cryptocurrencies in the world, with a total market capitalization of around $ 2.5 trillion. With different characteristics and use cases, each cryptocurrency has the potential to grow in its multiples in the next day. The risks associated with developing cryptocurrency use cases are equally high which is why, in the words of former RBI Governor Raghuram Rajan, “most cryptocurrencies are unlikely to survive at high values in the future.”
Industry watchers believe cryptocurrency’s potential as a currency has given way to its usefulness as a tradable asset. The proliferation of cryptocurrency exchanges around the world has occurred due to the continued interest of institutional investors in them. It also calms the nerves of central bankers who are happy to see the challenge to fiat take a different path.
However, the challenge, while it lasted, opened up the possibility of an electronic currency, with which the government and central banks around the world want to experiment. The Bahamas, China and Nigeria have taken the lead in launching their own central bank digital currencies (CBDC). Finance Minister Nirmala Sitharaman also announced in her budget speech in February that India would soon launch its blockchain-based CBDC.
If there is one contribution that the cryptocurrency sector has made to the financial system, it is CBDC. While El Salvador is the only country that still believes that a cryptocurrency can be legal tender, for the rest of the world, the fiat aspect of the cryptocurrency has morphed into CBDC.