With the Cryptocurrency rally moving at a fast pace, we all got one question on our minds. What the future holds for cryptocurrencies, and can it replace fiat money? Since their introduction in 2009, cryptocurrencies have grabbed the globe by storm.
Bill Gates once said, “The future of money is a digital currency.” On the other hand, Warren Buffett said that “cryptocurrencies will come to a bad end.”
First of all, let’s shortly describe what cryptocurrencies are.
What is Cryptocurrency?
Basically, it is a digital currency. However, for those who wants a more detailed understanding on cryptocurrency ‘’It is a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.”
How was Cryptocurrency Invented?
”The concept of Bitcoin first came into creation in 2008, as a response to the Great Financial Crisis and the financial world’s reliance on banks as intermediaries of all financial transactions.
The founder, Satoshi Nakamoto, had the idea of disintermediating the banks from financial transactions and creating a peer-to-peer payment system that did not rely on third-party confirmation. By this way, the banks did not need to be involved in each transaction.”
Growth of Cryptocurrency
Cryptocurrencies, which now number over 4000, have gradually gained trust among speculative investors and have grown in market capitalization. However, they have yet to be adopted by the general public as a viable form of money; due to practical technical challenges, a lack of trust in issuing authorities, and a lack of understanding of how to use cryptocurrencies.
As stated by many different institutions, the current monetary system is fragile. For example, as stated by Deutsche Bank, cryptocurrencies will have over 200 million users by 2030. According to the “Imagine 2030” report, Cryptocurrency may eventually replace cash as the desire for privacy, even became more decentralized payment system.
A report by Futurism highlights some of the possible outcomes should cryptocurrencies surpass fiat currencies at some point in the future.
According to the statement, an all-cryptocurrency future would have many significant advantages. One example is that its value cannot be manipulated as easily as fiat currency. Several different programs, such as uCoin and Cicada, are already using Cryptocurrency to distribute Universal Basic Income. In addition, cryptocurrencies could help to get rid of intermediaries in everyday transactions. With this, costs of doing business would decrease.
Of course, there are several significant obstacles and problems associated with this scenario. Traditional currencies will lose value without redress if cryptocurrencies outnumber cash in terms of usage. Should cryptocurrencies completely take over, new infrastructure would be required.
Dangers of Cryptocurrency
There are some cryptocurrency-specific hazards, such as lost hardware, passwords, hacking, fraud, and extortion. In addition, the other thing to consider is the amount of carbon emissions used in Bitcoin mining is massive. According to the report below, rising Bitcoin prices have led to an “astronomical” surge in CO2 emissions. Over the past two years, the historic rise of Bitcoin has caused emissions to increase by over 40 million tons due to its inevitable need for high powered computers that use intensive energy to solve complex mathematical equations—equivalent to 8.9 million cars added to the road, the BofA report said.
As a digital technology, cryptocurrencies will be subject to cybersecurity breaches and may fall into the hands of hackers. According to prescounter.com, we have already seen evidence of this, with multiple ICOs getting breached and costing investors hundreds of millions of dollars this summer alone (one of these attacks by itself resulted in the loss of $473 million).
Besides, since crypto exchanges and cryptocurrencies are a new market, they have many system gaps. Therefore, they are more vulnerable to money laundering risks than other financial systems. There have been many talks recently about authorities asking for AML regulations to be extended to Bitcoin and other cryptocurrencies. This implies that authorities worldwide regard Cryptocurrency as a dangerous instrument for laundering illicit proceeds of crime or financing terrorism.
Criminals use crypto money laundering to hide the illicit origin of funds, using a variety of methods. The total value of bitcoin transacted on the dark web is up 65% over the year of 2020 and 340% over three years, according to a report from Bitcoin technology company Bitfury.
Current State of Cryptocurrency
Major news for the crypto world was that recently El Salvador became the world’s first sovereign nation to adopt bitcoin as legal tender alongside the U.S. dollar. Most countries have not determined the legality of bitcoin, preferring instead to take a wait-and-see approach. In addition, the US, Canada, Australia, and the E.U. are among the countries that have a positive stance towards bitcoin.
China, in recent weeks has stepped up its efforts to rein in the country’s cryptocurrency industry, banning crypto mining operations and ordering major banks not to do business with crypto companies. However, China isn’t the only country that’s been making policy moves around cryptocurrencies — Iran issued a temporary ban on mining during the summer months, and India is potentially making ownership of crypto illegal.
After banks rejecting the idea of cryptocurrencies for various reasons like security concerns or monetary system consequences, several of these institutions are now keen to develop their own digital currency. According to a Bank for International Settlements survey, 60% of the world’s top central banks are trying to create a digital currency (BIS). Overall, 65 central banks took part in the BIS survey, representing 72% of the worldwide population and 91% of global economic growth. Twenty-one banks are from advanced economies and 44 from emerging economies.
Although central banks are not motivated by fears that cryptocurrencies would replace money as a mode of payment, the necessity to establish digital currencies that coexist with the advancements of the financial system is now a reality.
Final Words:
The U.S. dollar is a stable and trustworthy currency globally, even if its value is no longer tied to huge gold piles. It serves as the world’s reserve currency, facilitating international transactions and all elements of the global economy. Will it however, maintain that position? Is it possible that Bitcoin or another cryptocurrency will someday take its place?
For cryptos to replace cash, the crypto industry must overcome three hurdles which are listed as:
- The need for a robust virtual financial system that can contain cyber-attacks and other potential risks.
- Building alliances with the broader payment industry
- The Acquisition of legitimacy in the eyes of governments
To conclude, we believe that there is no doubt that Cryptocurrency is a game-changer, and it can eventually replace fiat money in the future. However, when is another question. It may very well revolutionize the conventional ways of monetary transactions – if it were to succeed.
