Have you ever wondered how humanity came to the point of accepting rectangular pieces of pulped trees for working 8-10 hours a day? It is a pretty exciting story. This change from exchanging goods – gold – paper currency is revolutionary.
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The Story of Currency
Earlier, humans were known to barter goods for other goods. The Barter system moved smoothly until people started settling down and cultivating. It gave rise to a coincidence of wants.
People living in the same area had access to the same goods, so their desires coincided. Humans thought it would be convenient to have a third good that can be exchanged to avoid the long chain of bartering. Hence money was introduced.
Money or currency is nothing but a third good, that does not spoil, and we all agree that it has value. As long it is durable and scarce, anything would be considered money.
Humans have used many bizarre things like money, including cattle, alcohol, and even limestone doughnuts. Over time, commodity money became impractical, and governments decided to print their own currency. That is how every nation has its own sovereign currency, just as we have the India Rupee [INR].
But the current financial system has some loopholes such as
You need an intermediary (Banks) to transfer your money.
You need to pay a small percentage for every transaction.
Governments can print as much money as they want, thus leading to the degradation of its value.
The price of goods increases with an increase in the money supply.
Not more than a decade ago, as a solution to these loopholes, someone named Satoshi Nakomoto submitted a paper on Bitcoins – a universal, decentralized and scarce currency. This idea was quickly embraced by cryptographers and soon seen as a valuable investment globally.
Though it is not as popular as the sovereign currency, many people trade using Bitcoins. It is considered a store of value as well as a medium of exchange. And who knows, just as people accepted a rectangular piece of tree pulp as money, they might accept Bitcoins too.
Here are a few things every Indian should compare between Bitcoin and Indian Rupee:
We have a floating exchange rate system in India. Meaning the exchange rate of Rupee with any other currency is determined based on that currency’s demand and supply.
Suppose there is more demand for US dollars in the forex market. In that case, the value of India Rupee deteriorates in comparison to USD.
The India rupee has fallen at an alarming rate of 7.7% against the US dollar in the year 2020.
The value of Bitcoins at the time of inception was ₹0 and today one bitcoin costs ~₹35 lakhs. Its demand and supply determine the price of Bitcoins.
While more INR or USD can be printed when the store reduces, Bitcoins are capped at a limit of 21 million BTC’s. Hence the more Bitcoins are mined, the lesser reserve is available. With rising demand, Bitcoins’ value has increased by more than 100% in the past year.
The Rupee is merely a piece of paper that the Indian government has declared as currency. When the supply of cash is low in the country, the government can decide to print more. The more it prints money, the lower the value of the money goes.
In other words, when more money is available, the prices of the products go up due to higher purchasing power. This, in turn, leads to inflation.
Also, paper money is easily susceptible to counterfeit. There are groups of people who print and circulate illegal money.
Bitcoin is designed in such a way that there will only be 21 million BTC’s available. This makes the currency scarce and more valuable. Since Bitcoins are backed by blockchain technology, it is pretty difficult to duplicate the coin.
3. As an Investment Avenue
People trade in India Rupee on foreign exchange markets. The Forex market is an over the counter market for trading in currencies. Though it is a highly liquid market, the price movements are relatively minimal.
Investors trade in bitcoins also. You can trade in Bitcoins by buying and selling it using Fiat currency. The crypto market is very volatile, and the prices keep fluctuating very often. This allows the traders to make good money by trading in Bitcoins.
4. Stability and Reliability
As discussed earlier, the fall in the value of India Rupee causes inflation. Inflation means the rise in prices of goods and services in the market over a period. The rate of inflation in the Indian market is highly volatile.
Over the past decade:
India’s inflation rates have an average of 6.32%, the highest being 10.53% and lowest being 3.6%.
Bitcoin is also susceptible to inflation. But, it is designed such that you can predict inflation in advance. Bitcoin halving is put in place to ensure that inflation decreases every four years. It is a safe hedge against inflation in the country.
The Indian Rupee is a sovereign currency and is regulated by the Reserve Bank of India. RBI is a regulatory body for money, banks and financial institutions under the control of the Indian government. The government thus backs the value of the currency.
Bitcoin is a decentralized digital currency. It is a private currency, and it cannot be controlled or altered by any regulatory authority.
Indeed, people do not consider Bitcoins as a mainstream currency yet. However, many countries are adopting Bitcoins as a medium of exchange. For example, Iran has adopted the usage of Bitcoins for imports and exports due to soaring inflation.
There may be someday when Bitcoin could replace the India Rupee as a mainstream currency also. So what are you waiting for? Claim your piece of the Bitcoin Pie before it becomes unavailable.
KuberVerse is an educational initiative. Anything expressed here directly or indirectly is not investment advice. And we ask you to do your own research before investing.