Cryptocurrency

By Jerilyn Camila, William Clemente, Dawn Deazeta, Janelle Maluping & Anthony Bugaoan

---

INTRODUCTION

The technology of today has also innovated the ways in which an individual can invest. Aside from digitizing the stock market, even currency can now be digital such as cryptocurrency. This article aims to provide the basics of cryptocurrency.

Cryptocurrency is a decentralized digital or virtual currency based on blockchain technology that is secured by cryptography, making it impossible to counterfeit or double-spend. One of its primary features is that it is not issued by any central authority. Theoretically speaking, cryptocurrencies are protected from government regulation. Bitcoins, one the currencies of cryptocurrency, can be used to buy regular goods and services, although many people treat it as an investment like stocks or precious metals

BACKGROUND

Technical Foundations

American cryptographer David Chaum invented in the early 1980s a “blinding” algorithm that remains central to modern web-based encryption. This algorithm resulted in a secure, unchangeable information exchange between parties, establishing the basis for future electronic currency transfers. Due to its characteristics, it was also known as “blinded money.” Before the end of the decade, Chaum founded DigiCash, a for-profit company that created units of currency based on the blinding algorithm.

Pre-Bitcoin Virtual Currencies

After DigiCash, researches and investments in electronic financial transactions became inclined to more conventional, though digital, intermediaries, like PayPal. In the United States, the most notable virtual currency of the late 1990s to 2000s was known as e-gold, created and controlled by a Florida-based company of the same name. E-gold functioned as a digital gold buyer. e-gold users were allowed to trade their holdings, cash out for physical gold, or exchange their e-gold for U.S. dollars.

Bitcoin and the Modern Cryptocurrency Boom

Bitcoin is considered as the first modern cryptocurrency because it is the first publicly used means of exchange to combine decentralized control, user anonymity, record-keeping via a blockchain, and built-in security. It was introduced in 2008 by Satoshi Nakamoto, a pseudonymous person or group. Bitcoin was released to the public in early 2009. By late 2010, popular alternatives to Bitcoin emerged, such as Litecoin followed by Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today, the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin currently represents more than 60% of the total value.

CRYPTOCURRENCY AS AN INVESTMENT

Kaspersky Lab’s report revealed that 19% of the world population bought cryptocurrencies before 2019. On the other hand, in Chainalysis’ 2020 report, it showed that out of the 154 countries they examined, only 12 countries have hardly any activities involving cryptocurrencies. In fact, the Philippines is becoming one of the world’s fastest adopters of cryptocurrency.

There is an increasing interest in investing in cryptocurrencies because of their high returns. Because of the volatility of cryptocurrencies, it is possible to gain tremendously high returns when you invest in it. However, it should be noted that this volatility also has its downsides, such as having extremely low returns. Aside from taking a risk in cryptocurrency, a prospective investor should also invest in his computer setup with good specifications. He also needs to invest his time and utilities (such as electricity). This only shows the indirect costs associated with investing in cryptocurrency.

There are other risks involved in investing in cryptocurrencies as well. According to the Wall Street Journal in 2019, more than $4 billion were lost to cryptocurrency scams. Moreover, there were also investors who became victims of hacking and malwares. These risks should not hinder people from investing but should serve as a reminder that they should exercise caution when they deal with cryptocurrencies. After all, investments with high returns always come with high risks.

The profitability of cryptocurrency seems tricky, especially for new investors. There are drawbacks that should be considered especially for those who want to try investing in cryptocurrency such as volatility. In fact, some banks such as JP Morgan are highly skeptical of the sustainability of its returns and call it the “evil spawn of financial crisis”. In addition, a bitcoin’s lack of inherent value is problematic. Most importantly, the market still needs to be assured on possible cybersecurity issues and how the regulatory bodies in the government can help them.

However, these issues can be remedied as technology continues to innovate and provide additional security measures for the consumers. In a research conducted by Fortune Business Insights, it is projected that cryptocurrencies would continue to grow in the coming years. With the use of blockchain technology, transactions are decentralized, transparent, quick, and dependable. These advantages are some of the reasons why individuals, institutions, and companies continue to invest in it.

CRYPTOCURRENCY IN THE PHILIPPINES

In the Philippines, cryptocurrency quickly gained its popularity and the investors adapted to it by including it in their portfolio. Interestingly, the growth of cryptocurrency in the country is the third fastest growing in the world. This shows the confidence that Filipinos have in cryptocurrency. Currently, cryptocurrency investments are being managed by the Philippine Digital and Asset Exchange (PDAX). One of the impressive benefits for the investors is the adequate support that this field enjoys. For instance, Bangko Sentral ng Pilipinas provided some security measures to mitigate consumer and cybersecurity risks, as well as to prevent it from being used in money laundering.

CONCLUSION

Cryptocurrency is an emerging asset class powered by blockchain technology, a system for recording information, thus protecting the integrity and security of a system. It is like a digital accounting ledger that records all the transactions which it then stores and updates in every participant’s system - a decentralized database. This feature makes it difficult to cheat the system which in turn led to it being used as a means of payment or as an investment. Furthermore, the growing concern regarding the quality of fiat currency degrading due to the printing activities of central banks further backed the view that bitcoins have a store of value similar to gold.

With the increasing awareness and acceptance of cryptocurrencies, different types of this asset class have surged in price resulting in more interest in the said class. There is no doubt that money can be made in either investing or trading cryptocurrencies- the price history of bitcoin is solid evidence of this position- but investors and traders, especially those utilizing their retirement or emergency savings, and ones operating with leverage, must apply proper risk management in order not to wipe themselves out. Only trade with the money in excess of your needs and do not let greed dictate your activities.

Cryptocurrency is an emerging asset class worth watching. Who knows? It might revolutionize how we live.

References:

• Ashford, K. (2021, April 9). What Is Cryptocurrency? Forbes. Retrieved from https://www.forbes.com/advisor/investing/what-is-cryptocurrency/

• Chainalysis Team. (2020, September 8). The 2020 Global Crypto Adoption Index: Cryptocurrency is a Global Phenomenon. Chainalysis Insights. https://blog.chainalysis.com/reports/2020-global-cryptocurrency-adoption-index-2020

• England, J. (2021, March 23). Cryptocurrency to become mainstream in the Philippines. FinTech. https://www.fintechmagazine.com/digital-payments/cryptocurrency-become-mainstream-philippines

• Fortune Business Insights. (2020, May). Market Research Report. Fortune Business Insights. Retrieved from https://www.fortunebusinessinsights.com/industry-reports/cryptocurrency-market-100149

• Frankenfield, J. (2021, March 7). Cryptocurrency. Investopedia. Retrieved from https://www.investopedia.com/terms/c/cryptocurrency.asp

• Marquit, M. (2020, April 27). Is Bitcoin Mining Profitable? The Balance. Retrieved from https://www.thebalance.com/can-bitcoin-mining-make-a-profit-4157922

• Partz, H. (2019, June 21). 19% of World Population Bought Crypto Before 2019: Kaspersky Report. Yahoo Finance. https://finance.yahoo.com/news/19-world-population-bought-crypto-135400587.html

• Roberts, D. (2021, January 28). Should you invest in cryptocurrency? MoneySense. https://www.moneysense.ca/save/investing/bitcoin/should-you-invest-in-cryptocurrency/

• Vigna, P., & Jeong, E. (2020, February 8). Cryptocurrency Scams Took in More Than $4 Billion in 2019. The Wall Street Journal. https://www.wsj.com/articles/cryptocurrency-scams-took-in-more-than-4-billion-in-2019-11581184800

• What is blockchain? Blockchain Explained: What is blockchain? | Euromoney Learning. (n.d.). https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain

• Zucchi, K. (2020, June 30). Is Bitcoin Mining Still Profitable? Investopedia. Retrieved from https://www.prescouter.com/2019/11/disadvantages-of-cryptocurrencies/