In November 2017 – throughout a matter of weeks – Bitcoin surged from being an obscure fringe investment to a global, viral tending sensation which everybody wanted to be a part of. Between mid-November and early-December, the price of Bitcoin went from $3,000USD for a single coin to over $19,000USD. Bitcoin was having its moment in the spotlight, and cryptocurrency is now the topic on everyone’s mind.
No matter if you think Bitcoin and cryptocurrency in general is a bubble which is destined to burst and come crashing down, or if you think your investments will pay off to over one-hundred times the Bitcoin peak in the long-run, there is one clear message: Cryptocurrency is shaping the future of finance and there is no escaping it.
What is Cryptocurrency?
A cryptocurrency is a form of digital currency which is anonymous and secure, detached from financial institutions such as banks. Think of a cryptocurrency as an exchangeable currency, like the United States Dollar, but is instead intended to exchange digital information through cryptography – the process which converts readable data into code which is untraceable and uncrackable, to track purchases and transfers. But, is it the future?
There have been hot debates on this topic which many people are divided on. There are both pros and cons to cryptocurrency, but the most important thing to consider is that, in the modern world, every second counts. Everybody is always looking for new and exciting ways to become more efficient, which is why digital currency has become so popular. When you use cryptocurrency to purchase something, the transaction is confirmed instantly. When you use cryptocurrency to send money – whether it is to your neighbour or to somebody halfway across the world – it gets to them instantly. There are no waiting periods, no time wasted waiting for authorization or for it to be cleared and no delays due to weekends or holidays.
Also, what makes cryptocurrencies so great, is that anybody can access it. You do not require permission to use it, you do not need to open a bank account, it doesn’t matter what your status is, where you live or what you do for a living. It is a simple software which anybody can use for free which, after you install it, you can use it to send and receive money. Nobody can stop you from doing it. This is what makes cryptocurrency so different to traditional banks who can turn you down from opening an account for any reason.
Is Bitcoin the Future?
The important thing to remember about cryptocurrency – particularly Bitcoin – is that it was created to operate outside national currencies and appeal to people who do not trust banking institutions.
In countries such as Venezuela, Bitcoin has become very popular where it is used in place of government-issued currencies which have suffered due to hyper-inflation. These currencies have become so popular here because transactions can be performed from a phone and Bitcoin’s value is much more stable than currencies which have failed due to hyper-inflation.
But, Bitcoin cannot be used on a national scale… at least not yet. Bitcoin supports a much fewer amount of transactions per-minute; Bitcoin’s framework itself can only support seven transactions per second. Now, if we look at how many global transactions take place per second, Bitcoin falls far below that mark; VISA’s credit card network can handle 65,000 transactions per-second. Plus, the privacy considerations are also a problem. There is a great paradox inherent in Bitcoin that it creates too much privacy and not enough privacy at the same time. Too much in that it allows criminals to trade anonymously within the drugs market, but not enough privacy that these transactions are still traceable.
Bitcoin is also very volatile; it fluctuates too much to be used as a global currency which needs to be stable and functional. A traditional currency has its value set by a central bank – the Euro has its value set by the European Central Bank – but Bitcoin’s value is driven by speculation and trend, which makes it very volatile and unsuitable for use as a national or global currency. One whole Bitcoin could have the power to buy you a car one day and then only be able to buy you a can of soda on the next day. This is an extreme example, but it is not impossible; that’s the problem with Bitcoin and why it couldn’t – in its current state – be implemented on a large scale.
What About Other Cryptocurrencies?
Just because Bitcoin is unlikely to be the future of finance, that doesn’t mean that the future of finance won’t be a different cryptocurrency.
Bitcoin – for the minute – is at the forefront of blockchain currency and is the face of cryptocurrency. However, due to its nature, it is unlikely to be the future of finance. There remains great scope for another cryptocurrency which is inherently different to Bitcoin and other volatile cryptocurrencies to come in and change the face of the game. The Federal Reserve and other large national banks are already interested in utilizing blockchain technology to bring to life a centralized national cryptocurrency and, many experts agree that, in the future, many countries will turn to cryptocurrency as we rely more and more on digital technologies. Traditional currency is already largely moving from being a physical commodity to digital ones – just look at PayPal or the huge rise of contactless technology for examples – so there is definitely the need for a method which secures digital transactions; blockchain technology is a top contender for providing this method.
When we are thinking about the future of finance, cryptocurrency has a great influence – its ability to better avoid hacking and exploitation – and based on the looming issues of cybersecurity, blockchain technologies and cryptocurrency are in a brilliant place to transform the future of finance.
In fact, some countries are already trying it. For example, Estonia are working to create an e-Residency program and part of their program includes the creation of ‘estcoin’, and they hope that it will be the world’s first national cryptocurrency. Additionally, the Bank of England are hard at work creating their own cryptocurrency and have even introduced its first experimental crypto framework – RSCoin – and the Bank of England will create digital money just like it creates its physical notes and coins.
To do this, the British economy – with 73.2 billion Great British Pounds in circulation – would have the same fixed number of cryptocurrency in circulation represented by a digital coin, instead of a physical one. People could then trade their physical pounds for digital ones, and there would be no economic effect since the pound is still a pound, it is just being exchanged for a digital one instead.
As countries such as Britain and Estonia begin to experiment with cryptocurrency, the possibility of it being the future of finance is real. As countries come closer and closer to their own cryptocurrency, it is becoming increasingly possible that in 50 years’ time, we could see nationally backed cryptocurrencies replacing their physical counterparts.
Given the reliance that we already have in contactless technology and online currency trading platforms, paper money is becoming less and less relevant. Transactions are now primarily made using credit and debit cards, contactless technology or sent online. We as a race no longer primarily rely on paper money, and it is entirely possible that we will see a cryptocurrency one day replace national currencies as we currently know them.