Cryptocurrency : Is it the future or an overhyped bubble?
Over the past few years, the web has developed exponentially and has helped mankind evolve in many ways. Cryptocurrency is one of the products of this process which might go on to influence the development in other sectors like finance and investment. As of recently, there is a rise in the popularity of cryptocurrency since they have started taking the market by storm since 2021.This made many countries consider the legality of these digital assets, with some countries choosing to ban them all together.
Cryptocurrencies work under decentralised control and its volatility has made many sovereign governments sceptical about it. Globally, its legal status is still a matter of debate and some countries are strongly against it. According to the Library of Congress in 2021, ‘an “absolute ban” on trading or using cryptocurrencies applies in eight countries: Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, and the United Arab Emirates. An ‘implicit ban1‘ applies in another 15 countries, which include Bahrain, Bangladesh, China, Colombia, the Dominican Republic, Indonesia, Iran, Kuwait, Lesotho, Lithuania, Macau, Oman, Qatar, Saudi Arabia and Taiwan. Many Big Tech companies such as Google, Facebook and Linkedin have temporarily banned cryptocurrency advertisements.
But now, there seems to be a change in trend. Due to the rise in their popularity, many governments are considering crypto-tokens and are thinking of giving it a status of legal tender. Recently, the Indian government presented its budget for the year 2022, where the FM Nirmala Sitharaman announced taxing the transfer of digital assets by 30% making India “one of the few countries to tax digital assets like cryptocurrencies and NFTs (non-fungible tokens) in their Budget.” This provision might not be the best news for crypto enthusiasts, but at least these provisions point out India’s approach of considering this virtual currency as a legal entity.
It is essential to analyse this concept and answer some questions like: What governs this system? How do blockchains facilitate efficient working of this system? What is Web 3.0 and how is it proposed to work with cryptocurrency? What are Defis2 and DAOs3? How are they influencing the current financial framework and how will it affect the future transactions?
What are Blockchains?
Blockchain is the technical framework that makes crypto transactions valid. The distributed ledgers which record Cryptocurrency transactions are supervised by blockchain technology. Blockchains help in establishing a peer to peer network which enables carrying out transactions from anywhere in the world. A blockchain is a list of these records called blocks which are secured by cryptography. By design, blockchains are inherently resistant to modification of the data, rendering the process secure, verifiable and permanent. This nature of blockchain makes cryptocurrency a viable option for performing transactions in the investment and finance sector which is witnessing innovation in the form of DAOs, DeFis .
What is Web 3.0?
Web 3.0 is an upgrade to the existing technological framework of World Wide Web which primarily focuses on decentralisation of networks. The motive is to establish a distributed network wherein the users will be able to carry out transactions with each other without a centralised body acting as a mediator between them. Web 3.0 is, thus, also considered as a possible solution to the problem of over-centralization of the web in the hands of a few Big Tech companies. Here the users, be it companies or individuals, will have a self sovereign identity– that is, the users will have control of their own digital identities and authority over their personal information that is being shared over the internet. This allows them to identify themselves without relying on any authentication systems like OAuth4 besides giving users the discretion of sharing their personal information as they wish without the interference of any third-party.
Why is it called Web 3.0 and what are its previous versions?
As the name suggests, Web 3.0 was preceded by Web 1.0 and Web 2.0. Web 1.0 was the era of formation. This was the period from the late 1990s to 2004 when the World Wide Web only consisted of static websites which were used only by consumers and not by content producers. Web 2.0 is generally considered to have begun around 2004 and continues to the current day. It has evolved immensely over the years, and now the web is used as a platform for content creation, a framework to facilitate cryptocurrency and to carry out transactions related to it and so on. Web 2.0 works on the basis of a centralised framework in contrast to cryptocurrency which, as emphasised, typically uses decentralised control. Although Web 3.0 has been proposed as a means to allow cryptocurrency to work in a secure, decentralised network, its implementation still needs extensive research.
How is Web 3.0 and cryptocurrency proposed to work?
The idea of this concept is to bridge the gap between the theory and reality of cryptocurrency. Hence, the Web 3.0 aims at improving the operations of blockchain networks which includes concepts like token-based economics and decentralisation of the blockchain network to establish a federated network. Web 3.0 aims at creating financial assets in the form of tokens in the inner workings of what the consumer does online.“It’s the first real consumer penetration” for crypto, says Jeff Dorman, chief investment officer of crypto fund Arca. “Over time, every company became an internet company. I think it will happen here in digital assets.”
With whatever little we know about Web 3.0, there are a few immediately obvious pros and cons. The most important feature of Web 3.0 is that it provides user anonymity. As proposed, Web 3.0 is expected to build financial assets in the form of tokens. Some visions around this concept such as decentralised autonomous financial organisations can be an evolutionary development in our current financial framework. Decentralised web represents the cyber-libertarian views and hopes of the past that the internet can empower ordinary people. The New York Times reported that several investors are betting $27 billion that Web3 “is the future of the internet”.
The Web 3.o aims at providing an enhanced user experience but it is important to note that many aspects of this concept are utopian, i.e. this concept can’t be implemented on the basis of current information. Extensive research is needed in this field which will happen, although in its own time.. Bloomberg states that sceptics say the idea “is a long way from proving its use beyond niche applications, many of them tools aimed at crypto traders”. Due to lack of regulations in this system it becomes difficult to report and regulate cyber crime thus, some experts think that it could lead to a rise in money laundering cases. Moreover, people are concerned about the possible misuse of this decentralised framework as anyone can post anything on the internet- and as there is no regulator, chances of malicious content being screened on the web (particularly social media) are high. Some people think it is a part of the cryptocurrency bubble and is an overhyped topic like the NFTs and that this could prove to be harmful in future.
As of now, cryptocurrency has a huge potential and if Web 3.0 works as proposed it will increase its efficiency. But, at the same time we can’t ignore the volatility of this sector. A mere tweet from an influential personality can cause fluctuations in their valuation . After analysing the pros and cons it would be fair to say that Web 3.0 is a concept far from reality. People tend to think of it as more of a buzzword due to its futuristic principles that aim at revolutionising the current World Wide Web. We can also anticipate a revolution in the inner workings of the Web as it will now be more AR (augmented reality), AI (artificial intelligence) driven than before and will aim at providing the consumers a more enhanced experience. It is also expected to create new job opportunities for web designers as AR and AI will play major roles in this process.
Footnotes:-
- Implicit ban :Implicit bans refer to those which prohibit banks or other financial institutions from dealing in cryptocurrencies or offering services to people or businesses that involve crypto. They also refer to placing bans on cryptocurrency exchanges from operating in the jurisdiction.
- DeFis : Known as decentralised finance this is an emerging concept in the field of finance governed by public blockchain technology
- DAOS : Decentralised Autonomous Organisations commonly known as DAO’s, are open source softwares or online bodies collectively owned and managed by its members.Even the money owned by DAO’s is global, open source and unregulated.
- OAuth: Open Authorisation system or authority which is commonly used as a way for Internet users to grant websites or applications access to their information on other websites but without giving them the passwords. Generally it is used by Big Tech companies like Google, Amazon to permit the users to share the information about their accounts with third-party applications or websites.
–Padmaja Uttarwar
FYBSc Division 2 (2021-24)