The Ups and Downs of Cryptocurrency

Translator

TEMPO

Editor

Laila Afifa

27 May 2021 07:13 WIB

TEMPO.CO, JakartaThe cryptocurrency market continues to attract millions of new investors. Clearer regulations are needed.

As it is no more than a bubble that could burst at any time, cryptocurrency must be treated with caution. The public needs to be very careful in responding to the soaring market for trading this virtual currency.

The Indonesian banking authorities warned about this right from the outset. On many opportunities, Bank Indonesia Governor Perry Warjiyo emphasized that the only means of payment recognized in Indonesia is the rupiah. The Indonesian Stock Exchange has not yet allowed the use of Bitcoin or other cryptocurrencies as an investment instrument. The only formal legality for trading in virtual currency in Indonesia is a permit to manage a crypto market issued by the Commodity Futures Trade Regulatory Agency. This is limited to a license for a company to sell cryptocurrency and does not regulate security risks for clients.

Many people are interested in investing their money in cryptocurrency just because they are blindly following the crowd. Without an appropriate understanding of the fundamental principles of the currency, how its value is determined or what causes this value to rise or fall, investors could be easily trapped. Rather than making many times their original investment, they are left frustrated.

The most fundamental principle is that, unlike the conventional currency, cryptocurrencies are not guaranteed by fundamental assets. Every virtual coin is only equivalent to a block 'mined' by a person using a particular computer program. Therefore, the rise and fall in valuation cannot be measured in terms of real economic activity in the markets.

A "miner" can obtain a block worth of one unit of cryptocurrency after running a computer program. Although there is considerable criticism about the environmental impact of mining cryptocurrencies, especially related to the large amounts of energy needed, there is no relation at all between the value of cryptocurrency and the profit or loss of companies developing these computer programs.

In other words: there is an element of speculation in the rise and fall of cryptocurrency values.

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