Cryptos appeared for the first time after the worldwide financial crisis in 2009. It was a period where the trust in the governments and financial institutions was undermined. The idea that transactions could be conducted without the use of fiat currency and the intermediary financial institution had an appeal.

Bitcoin appeared concealing the identities of transacting parties on the dark web where dubious deals were made. Later it became popular, but it was known that complete anonymity of transacting parties is not possible. It failed as an anonymous medium of exchange but established itself as a financial asset. As such it has no intrinsic value, but its price could be related to its scarcity. Crypto mining puts a cap of 21 million Bitcoins, of which 18.5 million have been created already. However, this scarcity is not a durable source of value. The current high prices are purely speculative, and are based on investors’ faith.

Alternative cryptos were designed to overcome the flaws of Bitcoins. Monero and Zcash are based on algos capable of concealing the identities of the users more effectively. However, their use is not convenient. Stablecoins provide stable value but the intermediaries must validate transactions. Their stable value comes from pegging them to fiat currency or government bonds. This is ironical. Facebook too proposes Diem, its own stablecoin.

In future, the multinational corporations may use unbacked digital currencies of their own. It then affects the sovereignty of the central banks. There could be abuse of such currencies for dubious activities. China has already banned cryptos. Other governments too are moving towards regulating such currencies. Cryptos pose financial risks to the retail investors.

Cryptos have underlying technology of blockchain which could be used in many other financial and non-financial areas. It can facilitate disintermediation in transactions. Central banks too have thought of designing their own digital currency. Cryptos have put fiat currency on alert. They have made low-cost digital payments accessible. It facilitates decentralised finance (DeFi).