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Cryptocurrency and the Road Ahead

The darling of digital currency to some, to others, cryptocurrency is a nefarious black hole sucking and trapping naïve first-time traders. Fraud they say (er-hem, J.P. Morgan, although CEO Jamie Dimon did take it back), others label it the “digital gold mine”. Amidst all the skepticism, optimism and speculation, there’s no denying that cryptocurrency is here to stay, at least for the foreseeable near-future.

At the crux, Cryptocurrency is a digital currency that is used, managed and created through intricate and advanced encryption technique known as cryptography.

Cryptography is the creation and testing of protocols that prevent external parties from getting access to certain sensitive information. Modern cryptography has evolved to involve various disciplines from mathematics, computer science, electrical engineering, physics and more. There’ve been fears of cryptography being used for espionage purposes through various digital channels and methods, to the extent where some governments have prohibited or limit its use.

 
 

But enough about cryptography, cryptocurrency’s ascension to fame started when Bitcoin was created in 2009. Bitcoin started to amass quite a following in subsequent years till media attention and significant investment in April 2013 catapulted it into the limelight. It’s a safe bet that even the Flintstones are aware of it.

At the height of its prowess, Bitcoin had a market value of over $2 billion before it plunged lower than any plunging neckline dress ever invented. That sparked discussion for the need of regulation and debate about the speculative nature of cryptocurrencies, causing volatility and ambiguity. It’s of not much help that the main benefits of Bitcoin: decentralization and transaction anonymity make it a big hit with criminals dealing with money laundering, weapons procurement and drug smuggling. It was even rumoured that North Korean leader Kim Jong Un instructed his hackers to seize as much digital coins as possible.

The limitation of cryptocurrencies presently faces: namely, one’s entire digital fortune could be wiped out by a computer crash, malfunction or hack. An apt example would be Coincheck Inc, a Japanese Bitcoin exchange was hacked for almost 500 million in digital tokens. While Coincheck has paid back most of what was lost, they haven’t disclosed how their system was breached beyond saying it isn’t an inside job. While the movie Ocean’s Eleven made such heist look stylish and sophisticated, the security lapse within Coincheck’s system was downright amateurish: Their customer assets were kept in a “hot wallet” instead of the usual “cold wallet”. A “hot wallet” is connected to external network, making it more susceptible to hacks, whereas a “cold wallet” is not linked to the outside world.

“I can say with almost certainty that they will come to a bad ending.” – Warren Buffett on cryptocurrencies, 2018

Always the man to turn to for an optimistic outlook (For the oblivious readers, this is sarcasm.), the bleak picture he paints is not that far-fetched. The cryptocurrency bubble bursts, when it inevitably happens (Whenever that might be), once the hyper over Bitcoin, Ripple, Ethereum and others have died down, the reflection of the value of the digital currencies will be evident and easier especially when they are more commonly used in the real world.

In closing, if you’re investing in cryptocurrencies, only invest what you can stand to lose. Cryptocurrency will most likely stay, albeit not in their current form, especially given that Bitcoin for as dominant as it is, Ethereum and Ripple have both made advancement that improve their utility compared to Bitcoin. The future of cryptocurrencies looks set to be headed in that direction.