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The Curious Case of Cryptocurrency: A Tool of Investment or a Currency Gone Berserk

Founder, Undisclosed
Nov 19, 2018 11:30 AM 3 min read
Editorial

Bitcoin, Ethereum, Litecoin, Ripple, Dogecoin and more...cryptocurrencies haven't been shy of staying in the spotlight over last 3 years.

 

High volatility – scaling colossal highs, mapping miserable lows and confronting rather harsh regulations – both on the domestic and international front, have been a common thread. 

 

Stories ranging from surprise millionaires; to investors who bet on virtual currencies in turn losing significantly are available in plenty.

 

However, were cryptocurrencies ever meant to be a mode of investment?

 

Or were they just another Ponzi scam, a bubble, bound to be burst one day?

 

People have called it a range of things; with very rare few having perceived it right. This is primarily because the inception, existence and purpose of this ‘mysterious’ currency remains hazy.

 

 

Cryptocurrencies have a very intriguing beginning, a rather ‘dark’ inception.

 

To understand their inception, we turn back to less than a decade (post 2009), when the first cryptocurrency BTC was floated by someone with the pseudonym Satoshi Nakamoto.

 

This is when 'Darknet' or 'The Deep Web', a form of encrypted internet was thriving with numerous 'illegal e-commerce markets' like the Silk Road (a kind of "Amazon" for all things illegal).

 

This hidden economy which otherwise operated in cash, moved to a new form of currency, one which was unregulated and held no identification traces.

 

Increasing popularity of cryptocurrencies marked a transition from a cash economy to a digitized one. As cryptocurrencies gained traction, they were being used to trade in this shadow economy comprising of drugs and other illicit goods.

 

Surprisingly, cryptocurrencies were designed to decentralize transactions, and were never intended to be a tool of investment.

 

Bitcoin, conceived in 2009, thus became the first digital currency which was unregulated, decentralized, anonymous, and holding a unified value across the globe - just about perfect for the purpose it began to serve.

 

Cryptocurrencies thus have been at their core, currencies i.e. a mode of payment for goods and services.

 

Now while the masses have accepted the digital currency, they have done so as a tool of investment and not as it was initially meant to be.

 

Ironically, this has largely ruined the very purpose it served i.e. the ability to serve as a currency.

 

Let's face it, one would never really think of "investing" in USD, GBP or EUR?

 

Yes, we'd trade it, but if history bears any witness, currencies and their storage as an investment asset only brings despair (ask those who kept their stash of savings in cash prior to the demonetization drive in India in 2016).

 

Cryptos are no different, their technology is priceless, offering much faster and seamless transactions vs. the draconian mode of transactions used by banks for real time gross settlements and the current remittance networks.

 

However, they're incredibly difficult to value. They can be priced, yes. But not easily valued. Unlike most currencies (which are also convenient to price but not value), crytocurrencies do not possess universal legitimacy, and are additionally exposed to global and not merely regional risks. Playing with them as a mode of investment hence is like playing with wildfire.

 

 

To illustrate, in mid-March 2015, a popular darknet market - one of the largest back in the day - went down as the administrators disappeared with $12 million worth of BTC in escrow with the portal at the time of exit.

 

This resulted in a massive dip in the value of BTC – a factor which no investor could have accounted for upfront.

 

Over time due to this lack of credibility, people who dabbled in cryptos learnt to stay away from a single crypto system and employed numerous other types of virtual currencies. 

 

The Bitcoin bubble hence burst, with its soaring values never crossing prior highs. Instead, an ad-hoc approach of creating and diversifying into newer and more advanced currencies which offer other benefits (such as greater privacy) took hold.

 

Let's just say, for now the world has a lot of grey areas, cryptocurrencies just happen to be one of them, and I daresay, putting your life's worth in a grey area isn't the best idea ever.

 

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