In a conversation with Blockchain Advisor, CA Naveen Sharma, the Chairman of The Institute of Chartered Accountants of India (ICAI) Dubai Chapter, speaks about the opportunities and challenges of cryptocurrencies, and the promises Blockchain tech brings along.
What is your take on the whole cryptocurrency mania taking over the world?
At some stage of our life especially in last 2-3 years, we all have experienced the cryptocurrency mania. These are mostly unregulated currencies, but some countries like Japan, China and Australia have begun weighing regulations. Governments are concerned about taxation and their lack of control over the currency. There are a mixed reaction and sentiments about cryptocurrencies in the market.
Many governments are warning their citizens about the risks of these currencies while on the other hand world’s biggest institutions and companies are trying to find the way to incorporate bitcoin in their business model. The future of cryptocurrencies is uncertain but the technology behind it – BLOCKCHAIN is something, we all should be looking for because there is a great potential that the Blockchain technology will become the future of finance.
The most known cryptocurrency is Bitcoin. Cryptocurrencies have their known advantages such as cashless transactions, easy access, more confidentiality, lower fees, and so on. Despite having all these advantages, the one thing which can go wrong is no government control over these currencies. The biggest cryptocurrency in the market ‘Bitcoin’ is free from any governing authority. If the currency is stolen from your digital wallet, you cannot take any legal action.
All the things have its pros and cons, but the growth in cryptocurrency market and interest was taken by many countries to involve the cryptocurrency in their economy shows that people are willing to take the risks associated with cryptocurrency. I feel cryptocurrencies are here to stay and in the recent years, we will see the increase in capital base of cryptocurrencies.
Can we look at crypto as an alternative to fiat currency?
Cryptocurrencies are digital currencies and it can be used as an alternative to fiat currency. However, for the next 8-10 years, I don’t feel we can look cryptocurrencies as an alternative to fiat currency. It will take some time for the people to understand the concept and put cryptocurrencies to use in their daily life. So for now, I don’t think that in near future, we can consider crypto as an alternative to fiat currency.
Can fiat and crypto coexist? What are advantages and disadvantages?
Cryptocurrencies have been existing along with fiat currencies since almost a decade now, and they will continue to do so especially when people, in general, have less knowledge about the cryptocurrencies and its concepts. Some of the advantages of cryptocurrencies are easy to access, easy to make payments, confidentiality, identity is anonymous, and so on.
But as I said earlier, where there are pros, there are cons also. One of the major issues according to me is no government control over the cryptocurrencies making these cryptocurrencies vulnerable to various risks and illegal activities. Apart from it, these currencies are uncertain and highly volatile and it is difficult to predict the future of these currencies.
While crypto is just part of what the blockchain tech can do, what sort of promises does the technology being along?
The technology behind cryptocurrencies – Blockchain – has sparked the revolution in tech industries all around the world. It is considered as the most groundbreaking technology since the invention of the internet. The main characteristic of this technology is the decentralized validation. It means that the technology is capable enough to eliminate the needs of the middleman like banks, governing, clearing houses, and so on, in a transaction. It is a new, rethought solution for our old problems. Imagine the convenience to transfer the money to other countries with just one click of the button. It promises us the technology which will be more efficient, capable and cheaper in exchanging information and reduce paperwork and errors related to it.
What sort of effect does crypto have on the financial industry in general?
Blockchain and cryptocurrencies are best suited for the environment where there is information sharing and validation is required by the middleman. Blockchain technology will sure have a major impact on the financial industry. It will change the way transactions were happening between the two parties.
It will not only eliminate the middleman but it will also make the transaction more efficient and fast. At the same time, using this technology for illegal activities can affect the industry adversely. Banking and financial institution have to restructured there the way of working to cope up with the new technology.
How is cryptocurrency different from fiat/paper currency?
Paper currencies such as Euro, Dollar, Pound, and so on, are a centralised currency which is governed by the regulatory authorities. They have an unlimited supply which means any government can increase the supply by simply printing the currency.
The same is not the case with cryptocurrency. They aren’t printed, like dollars or euros – they’re produced by computers all around the world, using free software. They are the decentralized currency with the supply tightly controlled by the underlying algorithm. Cryptocurrency system enables payments to be sent between users without passing through a central authority, such as a bank or payment gateway.
How are cryptocurrencies are stored?
Cryptocurrencies are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. It’s easy to use these exchanges but the main concern is the security of the digital wallets. In 2016, millions of dollars worth of Bitcoins were stolen from one of the bitcoin exchanges.
No legal action can be taken to find out about the stolen bitcoins as the coins are free from any regulations and governing authority. One of the unique factors of these wallets is that it allows users to buy and sell without getting their identity revealed – only their wallet ID will be revealed. While that keeps the users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.
How big is the Cryptocurrency Market?
After the popularity of bitcoin, many new cryptocurrencies have started merging out. Some of the first few cryptocurrencies which emerged were Litecoin and Namecoin. As of now, there are more than 1,000 different cryptocurrencies in circulation. One currency which really came close to the hype of Bitcoin was Etherum in 2016.
As the cryptocurrencies are becoming more attractive and many new users are emerging, it’s clear that the money is following into the Bitcoin and cryptocurrency system. The market cap of bitcoin is over 140 Billion dollars and total market cap of cryptocurrencies is over 350 Billion dollars.