Making cryptos count

Pavithra Jaivant | Updated on March 03, 2021

There is a math game on an online tutoring website. Each time a child completes a unit, which is a short five-minute lesson followed by practice and a quiz, he is rewarded a marble. When he gets enough marbles, he gets to unlock and play a game. For the uninitiated, this sounds a lot like how new Bitcoins would be unlocked. It is easy for one to draw parallels between the world of cryptocurrency and video gaming.

Hardly a day passes without cryptocurrency being in the news, and rightly so. Bitcoin, the leader of the pack, seems to be reaching dizzying heights with news of Tesla investing in it and hedge-fund managers not wanting to miss out on a share of the action.

One must admire the benefits of blockchain technology — the backbone of cryptocurrency — and its applicability to industries far beyond cryptocurrency. But to some sceptics things like the virtual wallet and ‘mining’ process seem like playing with monopoly money.

Language of their own

What’s more, enthusiasts seem to speak a language of their own, with terms like: ‘noob’ — slang, meaning newcomer or someone who is inexperienced; 'FUD' — short for fear, uncertainty and doubt; ‘Whale’ — owner of large amounts of cryptocurrency who is capable of influencing the market; and ‘HODL’, which was basically someone misspelling ‘hold’ which in turn got misread to mean ‘hold on to dear life’ and has stuck ever since.

However, with the value of one Bitcoin, close to $50,000, it certainly is far more significant than marbles on a video game or monopoly money. Add to it the air of mystery surrounding the white paper to which it owes its origin, Bitcoin: A Peer-to-Peer Electronic Cash System, by the anonymous Satoshi Nakamoto. And, most can’t resist trying to understand what it’s all about.

One can’t deny that at this stage, many have more questions than answers. Is it a capital asset or is it a currency? Is one going to buy it and just hang on to it like that old $20 bill that’s lying forgotten in a wallet after a holiday, waiting for the next trip where it can be used? Or, is it an investment that has to be watched on a regular basis? How will it be taxed? Is this how people who believe in land and gold as being the best places to invest feel about staples like mutual funds? What would help?

Enough has been said about this and everyone knows that it’s in the works. But once this happens, if people who haven’t yet wet their feet were to consider buying/investing, they would definitely feel a little better knowing that there is some regulation, supervision and recourse if things do go wrong as they have in so many cases. Further, if the current popularity trend of crypto were to continue, it can’t be very far in the future that the cryptocurrency market will greatly impact the rest of the financial markets.

One could argue that scams and illegal transactions have existed even in highly regulated spaces and this is true. However, the fact that the victims have some scope for redress could be a deterrent for the scamsters as well as provide a security blanket for buyers/investors. At present, one doesn’t even know with certainty if one is on the wrong side of the law when investing in cryptocurrency and that needs to change.

Investor education is crucial. More education on the fundamentals of cryptocurrency and how they derive their value rather than just focussing on their potential to provide better than average returns is needed. It would be interesting to see debates between enthusiasts and sceptics. A clear understanding of the risks one faces while investing in cryptocurrency would enable one to make a better decision of how much they can afford to invest and what they stand to lose.

Love it or hate it, crypto certainly can’t be ignored.

The writer is a chartered accountant, management graduate and a former analyst

Published on March 03, 2021

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