By Nathan Ferguson
Mankind has witnessed various revolutions throughout history. The First Industrial revolution brought the invention of the steam engine, and the world didn’t look back from that point. Humanity has continued its path of technological advancement since that point. The latest technological advancement is the invention of the internet.
The internet has transformed the entire world into a global village. This phenomenon has also affected the banking industry as well. People all over the world have the power to avail their banking privileges at the touch of a hand. Mobile banking has transformed the concept of traditional banking. Customers can now enjoy online banking facilities from all over the world.
Although mobile banking has revolutionized the banking industry, this is still not the biggest achievement in the field. It is because mobile banking has only transformed the user interface from traditional banks to mobile phones, it has not done anything to address the underlying issue in the field. This is an issue of centralized transactions.
Cryptocurrencies are the true game changer in the banking sector. This is because cryptocurrencies are based on decentralized transactions. This decentralized nature of cryptocurrencies allows them to be open and available for all. This means that no one person or a single organization could control the process. This ensures transparency in the transaction.
Cryptocurrencies are not just a financial innovation. They are a form of social, cultural, and technological revolution. Cryptocurrencies have revolutionized almost every aspect of human life.
Moreover, due to the decentralized nature of cryptocurrencies, everyone can use them. These are easily accessible and therefore, enjoy public confidence. This means that cryptocurrencies have immense potential to transform the international economy by bringing in a new era of economic enlightenment.
Cryptocurrencies are digital currencies. These can be considered to be forms of digital assets. They are managed by using cryptographic algorithms. These algorithms are based on blockchain technology.
There are various types of cryptocurrencies. Bitcoin or BTC is the most popular cryptocurrency worldwide. However, thousands more cryptocurrencies have emerged over time. BTC is the most sought-after cryptocurrency and it is one of the most precious commodities in the world.
One of the main issues with cryptocurrencies is volatility. Cryptocurrencies are extremely volatile. The prices of these currencies usually fluctuate with each passing second. However, there are some stable currencies as well. These are called stablecoins and usually, the price of these coins is pegged to a quantity, for example, a flat currency or any commodity like gold.
The price of cryptocurrencies is usually determined by the underlying blockchain technology. Blockchain technology is the new ground for international economic competition. The global powers are vying to get ahead of the competition in this technology. The advancement in blockchain chain technology is being carried out at an exponential pace.
There are tremendous impacts of cryptocurrencies. These currencies have the potential to transform the economic outlook of the whole world. This is the reason that the international economic players are vying for dominance in this field because whoever controls and commands the blockchain technology, will hold the economic reins of the world.
Like all tools and technology, cryptocurrencies also have certain advantages and disadvantages. There are various positive implications of cryptocurrencies. One of the greatest advantages of cryptocurrencies is that these currencies are accessible. People from around the world can use these cryptocurrencies without any interruption.
Moreover, cryptocurrencies can be used without the interference of any third party like banks. With cryptocurrencies, there is no need for banks. Customers can use these currencies directly without involving any bank in the process.
This way, the customers can enjoy transactions without any fees or any dependency on the banks. This has dramatically disturbed the status quo in the banking industry because it has struck a serious blow to the monopoly of banks on international transactions.
With cryptocurrencies, there is no need to open an account with a bank. According to one estimate, almost 1.7 billion people globally don’t have access to bank accounts. One can simply use cryptocurrencies by opening an online account with any wallet and then one can easily perform transactions all over the world.
This way, the 1.7 billion people who don’t have access to international banking facilities can enjoy access to intentional transactions by using cryptocurrencies. The inclusion of this population into the financial sector will have unprecedented consequences on the international community.
How do cryptocurrencies protect from inflation?
Another advantage of cryptocurrencies is the ability to control inflation. Cryptocurrencies can be used to control inflation worldwide and this way have the potential to end global hunger and economic instability. It is generally thought that cryptocurrencies like bitcoin have the potential to end the menace of inflation.
The decentralized nature of cryptocurrencies makes sure that no one institution can influence supply and demand. Moreover, there is only a limited supply of cryptocurrencies. For example, there is a limited supply of bitcoin. Once the supply of BTC finishes, it can’t be mined anymore. This way, there would be no inflation in the world if cryptocurrencies like bitcoin are adopted.
There is one more dimension to it. Since the BTC has increased in price immediately, therefore, many people are using it as an investment. This means that cryptocurrencies are being used as long-term and short-term investments, rather than for carrying out transactions. This way, the cryptocurrencies have been transformed from currencies to assets. The users of cryptocurrencies are ‘owning currencies rather than use them.
The international monetary policy has failed to live up to its potential. There is worldwide hunger and an increase in the level of inflation. This is because the monetary policy is shaped by a chain of international banks and these banks take care of the capitalist needs rather than inflation. The use of cryptocurrencies can change that because it brings the monetary policy into the hands of common people by decentralizing the transaction.
Moreover, the economic crisis of 2008 proved that the contemporary global financial system has crashed and therefore, a new system is needed to replace it. Bitcoin provides the necessary infrastructure needed to transmute this dream into reality.
Bitcoin is based on state-of-the-art blockchain technology and it is decentralized in nature which means that no single institution or entity has control over the supply and demand chain of BTC, therefore, it offers the perfect alternative to the prevalent international monetary system.
The need for cryptocurrencies in controlling inflation can be better understood by analyzing the economies of developing and underdeveloped countries. The economic growth of these countries is starved by the international monetary system.
The system forces them to devalue their respective currencies against the US dollar which further increases the inflation in these countries. Therefore, these countries need to maintain a certain amount of foreign exchange reserves to mitigate their economic needs.
Keeping huge reserves leaves countries with starved economies and high inflation. Therefore, the use of cryptocurrencies in these countries is the best alternative for keeping their economic situation vibrant.
These countries are more likely to adopt cryptocurrencies as their local or transactional currency because it will get them rid of the shackles of international monetary watchdogs. In this way, cryptocurrencies pose a grave threat to the status quo of the international banking and finance system.
Are there any problems with cryptocurrencies?
Like any other technology, cryptocurrencies have certain disadvantages as well. Some disadvantages of cryptocurrencies include their volatile nature, harmful implication on the environment and resultantly the economic system, and most importantly the cryptocurrencies are used in criminal activities.
Cryptocurrencies are extremely volatile. The price of these cryptocurrencies changes with each passing second. Therefore, they might not be able to provide a sustainable base for daily use. The volatility of cryptocurrencies might also force the public to dump the currency which will further reduce the price. This means that most international economists would suggest that these currencies would not be effective for payment in the longer run.
International economists also point out that the nature of cryptocurrencies is decentralized and it is not backed by any international bank or international institution.
Therefore, there is extreme volatility in the prices of cryptocurrencies because the decentralization of cryptocurrencies cannot control the supply and demand of these currencies effectively. This is evident from the example of bitcoin. The value of bitcoin reached its maximum in 2022 and since then there has been extreme variation in the prices of BTC.
It is said by various environmentalists that cryptocurrencies are injurious to the environment. This is due to the reason that mining of various currencies involves proof of work (PoW). PoW causes environmental pollution and produces greenhouse gases because during the process of PoW, a large amount of energy is utilized and resultantly it hurts the environment.
For example, BTC is the most popular cryptocurrency and it is estimated that the mining of bitcoin alone contributes 0.08% to global CO2 emissions. This figure does not include the emission caused by the mining of remaining cryptocurrencies. Since there are thousands of cryptocurrencies, and most offer PoW as a way of earning them, the threat posed to the environment by the cryptocurrencies is real.
The most significant disadvantage of cryptocurrencies is that these currencies are used by cybercriminals. Due to the decentralized nature of cryptocurrencies, it is unable to track the money trail and hence it is the favorite tool of cyber criminals to transfer their money. These cryptocurrencies are also used in money laundering and also in various other criminal activities.
However, the criminal use of cryptocurrencies is very low in percentage. According to estimates, almost 0.15% of crypto transaction volume is based on criminal activities in 2021.
Will cryptocurrencies survive an recession?
Innovation is the driving force behind the success of cryptocurrencies. Innovation drives the wheel of cryptocurrencies. With each passing day, the processes used in mining, staking, and trading cryptocurrencies are getting sophisticated.
Various developers all over the world are trying to excel in the field. There are many labs in which the top research brains are coming together to promote innovation in the field. Therefore, the introduction of new and improved technologies remains at the heart of cryptocurrencies.
Moreover, innovation brings investment to the field. The international major players are always in need of finding future projects. Innovation in cryptocurrencies increases the inflow of investment and promotes industrial developments. This development then makes sure that the prices of cryptocurrencies are kept at a stable level. Therefore, crypto researchers from all over the world are vying for dominance in the field of cryptocurrencies.
Innovation, investment, industrial developments, and stable prices create a stable positive feedback loop. The feedback of the customers is taken in a constructive way and researchers try to improve upon the already implemented structures. This way, there is continuous improvement in the field of cryptocurrencies.
On the other hand, demographic and geopolitical factors play a huge role in the progression of cryptocurrencies. Cryptocurrencies rely on decentralized networks, which means that they are managed by local miners. These miners are affected by any change in their local environment.
This means that the changes in the economic conditions of a particular place will affect the cryptocurrencies as well. The tight monetary and fiscal policy coupled with the increasing inflation will force the investors to pull out their money from the cryptocurrencies. In tight monetary situations, the central bank increases the interest rates, and usually, the investors deposit their money in the banks.
In other words, with tight monetary policy and high inflation, the money which is invested in cryptocurrencies is taken out by the respective investors and the crypto market drops suddenly. This process is called ‘crypto winter’ or ‘bear market cycle’.
In crypto winter, the prices of cryptocurrencies fell by a huge percentage. The investors pull out their investment and small investors or the new traders suffer huge losses. The ideal condition for trading in cryptocurrencies is that one needs to buy the crypto at a lower price and sell it at a higher price. The new traders lack the experience and the patience to deal with the pressure.
They usually end up selling their portfolio in a crypt winter and eventually, end up losing most or all of their money. This means even though cryptocurrencies are decentralized, the value of these currencies is still dependent upon the international monetary system and the prevalent economic system.
Moreover, other than external economic conditions, the value of cryptocurrencies is deeply connected with the underlying blockchain technology. Cryptocurrencies owe all of their success to this technology. Moreover, blockchain technology and innovation are deeply related. The continuous innovation in blockchain technology drives the crypto revolution and keeps these currencies in demand.
Cryptocurrencies and their implications on the broader crypto-economy
With the sophistication in blockchain technology, the use of cryptocurrencies has become the new normal. The journey of cryptocurrencies from a mere concept to one of the most fast-growing industries has been propelled by the constant innovation in the underlying technology of the field. The common use of cryptocurrencies in everyday life has resulted in the formation of a new term called crypto-economy.
The crypto market has been increasing in size over the last decade. The technology is in a positive feedback loop which means that the system is sophisticated enough that any mistakes or bugs are taken out with each passing iteration. Yet, there is still room for unexpected events as well.
The base of cryptocurrencies is built on incredible blockchain technology. By using this technology, even a single entity can boom in the crypto market. This is evident from the example of Terra Network. This network was able to increase the value of their coin named LUNA by many times. This means that in the crypto-economy, even a single network can cause the entire market to boom and produce benefits for everyone.
This type of massive event creates a ripple effect. Various other coins and networks follow the pursuit of the successful one and introduce innovation in their platform and as a result, the market rises. This rise in the market also motivates the investors to invest more in the market and in this way the market rises.
The investors start making profits and the crypto market rises. This means that the domino effect created by a single network can have a huge impact on the entire market.
The sudden rise and fall in the crypto-economy usually constitute a crypto-cycle. One crypto cycle usually consists of one rise and fall of the market. This cycle repeats itself over and over again and constitutes a crypto-economy. This repetition aims to make sure that despite the volatility, the crypto-market survives.
Moreover, the innovation in the underlying technology also plays an influential role in keeping the crypto market alive. The regular innovation in blockchain technology makes sure that the customers are getting state-of-the-art technology at their disposal.
This innovation further drives the crypto-economy. However, the crypto market is based on positive feedback, which means that with each cycle, the overall crypto-economy improves and the value of cryptocurrencies strengthens.