Potential consequences of unregulated growth of cryptocurrencies will be enormous.
With digital or cryptocurrency gaining growing popularity and acceptance in financial markets around the world, particularly in developed countries, digital assets management is likely to be a global challenge of this decade.
Digital computer, digital data, digital transmission, digital TV, digital network, digital music, digital media, digital imagery, digital camera etc. are in our common vocabulary. Digital currency or cryptocurrency is getting there.
In sociological terms digital currency is a silent revolution as 99% of the people are unaware of its impact. No doubt its socio-economic repercussions are going to be felt globally. The next decade will be game changing time for humanity.
Besides, it’s going to make revolutionary changes in business, finance and economic operations with very little or no government regulations in place, as opposed to what we are familiar with in banking systems today.
Digital revolution, unlike industrial revolution, has no smoke or fumes to pollute the environment. As a matter of fact in future it will be more invisible to most people. The potential consequences will be enormous.
Besides, its social ramifications are likely to widen the gap between rich and poor, haves and have nots, unless it is navigated in righteous way to extend its benefits to every working family.
While the fruits of industrial revolution started slowly percolating to rest of the world after WWII, digital technology gave birth to a new revolution, namely Information Revolution.
The sleepy third world countries did not even feel its impact for nearly fifty years. Only in the beginning of 1990s, there was a sudden awakening of computer systems operations people.
They realized on the dawn of 21st century, most information systems applications in operation were likely to fail due to a technical glitch. It would be a worldwide calamity bringing down world’s financial systems. They termed it as Y2K problem.
Corporations and governments all over the world made large scale investments to overcome Y2K problem, a simple computer glitch, knowingly inserted in computer softwares nearly thirty years back.
Developers thought that those software programs would necessarily be redeveloped over the years, but that did not happen. So the software changes were essential to avert an existential threat and avoid the collapse of computer application systems.
Although, internet technology was being used by US defense agencies and certain universities from mid 80s, internet technology became popular only after its release to public by the US Government in 1993.
Incidentally, most corporations and government agencies over budgeted Y2K implementation making substantial funds available for more innovative software products and technologies in the new millennium.
Unfortunately, technology was not matured enough to take advantage of the funds that were invested in newer internet based software products. Many new software development projects failed. That resulted in the dot com bust and collapse of dot com business ventures.
However, human ingenuity prevailed, internet technology started yielding results in the very same decade, thanks to technology visionaries.
Digital revolution started after WWII with the invention of transistors and other semiconductor components, paved the way for further exponential developments in the area of micro-electronics and telecommunications.
These technologies no doubt catapult human civilizations to progress unimaginable manner in spite of uneven applications usage across the glob.
In the area of emerging technologies, Artificial Intelligence and Blockchain technologies are going to permeate in every walk of life.
Corporations are already investing billions to reap its benefits sooner than later. Implementation of these technologies are fascinating and challenging to say the least.
The digital currencies or cryptocurrencies are the new additions in technology innovation, and are being termed as digital assets and financial instruments that are beyond any sovereign nation’s control without any physical boundaries.
In other words fiat currency such as US dollar and British pound are financial instruments of sovereign nations with tight regulations and management controls by respective sovereign nations.
They are also constantly monitored by international financial institutions such as International Monitory Fund.
It may be pointed out that cryptocurrency has no intrinsic value. It’s not tied to any central banks and its virtual edifice and operations are built upon mere supply and demand speculations.
The very first cryptocurrency or digital currency appeared in the market place in 2009. Called Bitcoin, it’s developed using an innovative open source technology called Blockchain, and a data communications network concept called peer-to-peer network.
Blockchain is a unique software framework over which secure digital currency transactions processing applications are being developed and hosted in virtual cloud environments.
Bitcoin’s initial value was about 0.2 cents for one Bitcoin. Today it’s valued over $43,000 per Bitcoin, and is speculated to reach $100,000 by the year end.
Four years later, another software framework called Ethereum network evolved using the same open source Blockchain technology which has the capability to develop any kind of asset management applications.
Ethereum token, similar to Bitcoin is its own digital currency. Valued a small fraction of US dollar in 2013, its value peaked to nearly $1,700 recently.
In the case of Bitcoin, the maximum offer is fixed at 21 million Bitcoin out of which over 18 million have already released.
There are over 1,500 digital currencies in operation now. Currently, cryptocurrencies market is valued to be over one trillion dollars. Most of these assets are owned by Bitcoin miners, business tycoons, international corporations and large financial institutions of repute.
But crypto currency has no boundaries or authorities for check and balances. It can be a scary thought, if the existing brick and mortar financial institutions are functioning without any state control or regulatory authorities.
Since the commercial banking industry started over hundred years back, how many times the governments had to intervene and pump public finance to save it from bankruptcy?
Cryptocurrencies will have same fate some day. Unbridled profit motives, inability to assess the risk management strategies of digital currencies are likely to rattle the economic progress and financial stability several times within this decade.
Media reports suggest cryptocurrencies are sort of speculative gameplay for those who have money to spare and willing to take huge risk in the name of investments.
So far at best the cryptocurrencies values have been volatile and risen recently. Like any speculative venture its value is directly proportional to the player’s enthusiasm.
Recent news reports reveal, like any other online systems, although Bitcoin and Blockchain command higher level of data security, it’s still vulnerable to fraud, crime and mismanagement.
Bitcoin is flying high now. Every coin has two sides, so has Bitcoin too, proponents and opponents. Both parties are very vigorous in their arguments and both agree that Bitcoins is a bubble.
The proponents suggest it has become a main stream investment asset with more and more large businesses, Wall Street pundits, global billionaires making unprecedented investments in Bitcoin.
The opponents are skeptical about the whole concept of cryptocurrencies or digital currencies as these currencies have no intrinsic value like gold or such tangible assets.
They believe the bubble is blown to a high risk area, unlike its initial days when players were curious about the concept itself.
As a believer in science, one knows anything that goes up has to come down unless it has its own escape velocity to overcome gravity. So it’s anybody guess what is likely to happen in future.
However, in the next few years it’s possible that some amount of self regulations by cryptocurrency offerers and eventually some kind of government control over their operations may save the financial world from total collapse.
(Krish Pillai is a former business owner and Information Technology consultant for over thirty years. A former IIT Delhi student and IIT Madras staff member, he lives in Washington DC metro area.)