Cryptocurrencies are the new age foundation of growing economy. It is a form of digital asset that is designed to work as a medium of exchange that uses strong cryptography to ensure security to financial transactions, controls the creation of additional units, and verifies the transfer of assets.
Cryptocurrencies are emerging in to the mainstream market and is being widely used by all kinds of public. However, even the new age currency has its own problems to deal with.
It has a decentralized nature and the prices are unregulated. The not enough complete knowledge regarding cryptocurrencies makes it all the more doubtful for investors to invest in.
But in recent times measures have been taken to come up against the problems involving cryptocurrencies, especially regarding transparency and security.
Transparency is one of the major factors that drives the use of distributed ledger based applications, like blockchain, such as cryptocurrencies. Cryptocurrencies provide a sense of anonymity to its users. Users can make transactions with one another without any information related to their identity being disclosed. However, even with the presence of this kind of privacy setting cryptocurrencies provide enough transparency to make it trust worthy.
All transactions conducted are recorded in a permanent public ledger (blockchain). After the cryptocurrencies are moved from their initial address to the address where the transaction is made, the entire financial movement can be traced. Blockchain ledgers are searchable and, hence, can be used to track transactions. It provides open viewing regarding where all the participants keep their holdings and make transaction at each public address which is anonymized behind a transaction hash.
However, investors have still expressed their scepticism regarding the transparency provided by cryptocurrencies.
This was tackled in the year 2017. The launch of Digital Currency Index helped ease the situation up. The Digital Currency Index is the first known, widely accepted market index that keeps a track of the cryptocurrency industry. It tracks the marketplace value of cryptocurrencies based on their variety of use- quality-wise as well as quantity-wise. It also provides insights and analysis in the market.
There are other areas that cryptocurrency projects are trying to solve related to transparency problems. One of them is the proof of solvency. It is important to measure the success and failure of cryptocurrencies. The proof of solvency helps build the foundation of trust. It is because investors would want to be aware of the risks they are taking with a specific finance related matter that they are investing their funds in to. However, most transactions don’t prefer to disclose the financial details of their internal operations openly, which is one of the issues to be tackled. However, some cryptocurrencies, for instance, Bitcoins offer complete proof of solvency, which in turn makes them one of the most preferred cryptocurrency even after being slightly pricey than the others.
The security concerns regarding cryptocurrencies are being tackled by the non involvement of a centralized system. Cryptocurrencies work based on a decentralized system which means that no banks or authority or government institutions are involved in it. This makes the transactions a lot faster than the traditional methods. Cryptocurrencies aim to protect the identity of the user, using cryptographic encryptions. The present cryptocurrency projects are striving to completely remove centralised exchanges. The projects are expected to remove the concept of custody from these exchanges, altogether. This is because Exchange custody is a straightforward security threat that tampers and makes it unreliable for both new and old investors to cultivate their trust.
The exchange concept that includes Peer-to-Peer networking solidifies the trust one can put in the cryptocurrency company. This eradicates the threat of breach in one’s privacy. A notable example would be thee project undertaken by Atomic Wallet- a cryptocurrency wallet that focuses on deploying a technology called Atomic Swaps. Atomic swaps enable users to exchange assets without the involvement of third-party custodians or a middleman ever taking control. This process is entirely based on Peer-to-Peer concept and supports cross-chain swaps- where you can use bitcoins and ripples and forms of cryptocurrency. This also broadens the horizon in the world of cryptocurrencies.
There are some projects that bypass custody altogether by both users or exchanges. Morpher being a virtual trading platform where users speculate on the market of the underlying asset via Ethereum smart contracts, is an example. Smart contracts mints and burns the Morpher token based on the performance of the underlying asset represented by the contract. Therefore, there is no fees and there is theoretically limitless liquidity for any type of market- as because the Morpher token can “morph” into any type of asset.
Keeping in mind the problems and the efforts put into correcting the cryptocurrencies further more just proves the point that it is here to stay in the market for another very long time. Cryptocurrencies now strive to make transparency and security regarding one’s privacy coexist, which would only enhance its features more and more and sooner or later become the game changer in the world of currencies.