Let us understand the possibilities of investing in digital coins from a seasoned expert in blockchain technology, Ashwani Kumar, VP, Enterprise Architecture at Coforge.
Digital coins, a term unheard of a decade ago has attained a massive portion in the portfolio of some of the biggest investors in the world. Multinational corporations have already pumped billions of dollars into the cryptocurrency market within the last few years.
The most prominent example is Tesla, which bought a whopping $1.5 billion worth of Bitcoin in 2021. When such industry leaders are investing in digital coins, it is bound to get the retail investors curious and excited about the prospect as well. That is precisely the reason why the last couple of years had witnessed massive interest and participation from retail investors.
Blockchain Technology in Digital Coins
In essence, the aim of these digital coins is to establish decentralised platforms for making transactions using global currencies. Now, it is well-known how difficult it is to use fiat currency to warrant international transactions. You are at the mercy of financial institutions like banks, which charge exorbitant amounts of processing fees and take time, depending on the amount of money being sent and received. Banks have all the power which makes them vulnerable to fraud.
“Blockchain Technology is the future of digital transactions and the knowledge regarding the space is evolving constantly. It is important to learn, unlearn and relearn everyday. While long term investment in some digital coins could reap massive returns, it requires due diligence to determine which coins will become huge and which ones will be forgotten.” – Ashwani Kumar, VP, Enterprise Architecture at Coforge
But with blockchain technology, the proof of transactions is stored on a distributed public ledger which is visible to everyone. Hence, the transparency and efficiency of the entire process are greatly enhanced. It becomes nigh impossible to delete or edit the trail of any transaction. That is the reason why it is considered a secure mode of transaction. With so much fraud and identity thefts taking place everywhere these days, the blockchain-powered application of digital coins seems to be the ideal solution which is the reason why it is gaining such rapid adoption.
Advantages of Digital Coins
While there are thousands of digital coins/currencies in the market today, Bitcoin and Ethereum are two of the biggest and most widely known coins. Bitcoin is about to hit the $1 trillion market cap ($800 billion at the moment) with Ethereum hovering somewhere around $370 billion.
While the technology backing the digital coin usage is still at a nascent stage, governments and people are beginning to understand the relevance of enabling payments through these coins turning them into universal currencies. It would massively reduce people’s dependence on traditional institutions like banks and offer them freedom of handling their transactions themselves in a secure manner.
In addition to that, acceptance of Bitcoin in the global marketplace will allow for digital payments interdependent of your geographical location or the currency that is prevalent in your country to tackle the currency exchange rates.
Challenges with Digital Coins
While on one hand, being at an early stage of development offers potential for massive returns for the investors putting their money in digital coins, on the other hand, the exact same reason could be a cause of worry because of the risk involved in investing in any developing technology. The regulations regarding digital currencies around the world are not clear yet.
Rumours of a few governments banning the usage of cryptocurrencies are also in the air. However, it is unlikely that a complete ban could happen considering the merit these digital coins hold. However, before you go out there to invest all your money in digital coins, make sure to do your due diligence and research about the business model and risk-reward prospect of any asset.
Digital currencies should be treated as a great way to diversify your investment portfolio. These investments will fall under the high risk, high reward category. Hence, a small part of your investment could be made towards this sector which could gradually be increased once there are some encouraging signs in times to come.