Bitcoin
Not a currency
Cryptocurrencies are virtual currencies mined by people across the world by solving algorithmic equations. Those mining the currencies also help maintain an open ledger called blockchain, in which all the cryptocurrency transactions are recorded.
These currencies can be purchased by anyone though cryptocurrency exchanges across the world. The currencies purchased are stored in digital wallets on mobiles or computers and used for further trading or for buying goods and services.
Initially, cryptocurrencies, including bitcoins, were looked upon as an alternative to conventional currencies such as rupee, dollar, euro etc. Many had expressed an opinion that given the debasement of the value of conventional currencies due to continued monetary easing, crypto currencies could emerge as a viable alternative. Greater transparency, lack of government control and the digital base were said to favour this shift.
But the fact that cryptocurrencies can be used to buy goods or services across the globe, with no regulatory oversight has led to their misuse in financing drug trafficking and terrorist activities. The volatility in prices of these currencies has also made them useless as legal tender.
Is it an asset?
Supporters of cryptocurrencies have however been trying to sell the idea that while it is not a currency, it is an asset akin to other assets such as stocks, mutual funds or gold.
When the price of bitcoin, the primary cryptocurrency that accounts for almost 50 per cent of the global traded volume and market cap, hit $10,000 in early December, 2017, interest in this currency surged.
In the next couple of weeks, price hit $19,200 with a speculative frenzy gripping this segment. Prices have since crashed to $9000 over the next one month.
It would, therefore, be best to wait for a regulatory nod before investing or trading in cryptocurrencies. These are currently too risky to be treated as even alternative investments.
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