In a period of a few years, cryptocurrencies have managed to grow from mere digital novelties to trillion-dollar technologies. With the global blockchain technology residing at 1.2 billion USD worldwide, crypto now holds the potential to disrupt the global financial system.
While proponents suggest that cryptocurrencies are a democratizing force as they are snatching away the control and power of money creation from central authorities, critics think this new technology empowers criminal groups and terrorist organizations.
But that certainly raises an essential question here. Will cryptocurrency manage to get to the top of the table and become the universal currency? Without further ado, let’s find out.
Why Are Cryptocurrencies Becoming Increasingly Popular?
There is no doubt in admitting that cryptocurrencies, especially Bitcoin, have skyrocketed significantly in recent years. You might not know it, but the price of Bitcoin surged to more than $60,000 for the first time in 2021. But why is that?
Well, as far as the traditional financial system is concerned, if the currency is manipulated, the system fails as money won’t hold actual value, and investors won’t be able to get a return on their investments.
That said, if there is a constant rise in inflation, cryptocurrency can act as a hedge because of the perks it offers. Starting off with international transactions, if you wish to send money to somebody overseas, you would have to include an intermediary such as a bank, and not only would the transaction take days, but you might be charged a significant fee as well.
However, with Bitcoin, things are a bit different as the transaction will be completed in a short span and you won’t have to pay hefty fees at all. Plus, you won’t be required to take assistance from any intermediary.
The Added Benefit
You would be glad to know that not only are popular cryptocurrencies like Bitcoin being held as investments but they are also used to purchase many items, directly or indirectly. Websites like Coingate allow individuals to purchase gift cards of different types, such as a gift card for a particular gas station, allowing users to redeem it whenever they want.
What Challenges Is Cryptocurrency Creating?
With the increasing adoption of cryptocurrency worldwide, it is giving rise to a new set of challenges for governments and authorities to contend with. The portability and anonymity of crypto make it appealing to rogue states and criminal groups. Not just that, but mining crypto requires an enormous amount of electricity which leads to many environmental effects.
These challenges are explained below for further understanding.
1. Environmental Harm
In case you don’t know, crypto mining is a relatively energy-intensive process. The network has now started to consume more electricity than many countries, which has sparked fears about the contribution of crypto to climate change. However, proponents suggest that renewable energy can tackle this problem.
2. Illicit Activities
Recently, cybercriminals have found a way to carry out ransomware attacks. In such attacks, they infiltrate and turn off the computer networks and demand payment to restore them. Moreover, money launderers and drug cartels are also incorporating virtual currency.
3. Unregulated Finance
The rising demand for cryptocurrencies and DeFi enterprises means that transactions of billions of dollars are starting to take place in a relatively unregulated sector. Not only is this raising concerns regarding cybersecurity and fraud, but it is also affecting the broader financial stability.
Despite All The Challenges, How Will Crypto Benefit The Economic World?
Since no intermediary is required for crypto transactions, the transaction speed will increase significantly. Not only that but not having any intermediaries also leads to low transaction costs. This further implies an increase in the volume of transactions and efficiency in exchange.
That said, the need for a physical structure where people can come and interact will decrease significantly. As a result, a decrease in fixed costs will also be noticed due to the non-requirement of utility bills, wages, and rent expenses.
Moreover, since there would be no geographical barriers to crypto, no central agency would be required to monitor the transactions, facilitating quick and easy corporate trades.
Besides that, since a peer-to-peer network backs the blockchain system, all the transactions are decentralized. All those users who think that they should have complete control over their money, even in cases of loans, would find cryptocurrencies to be quite good. Therefore, cryptocurrencies can provide access to a diverse loan portfolio.
In addition to that, entrepreneurs can benefit from crypto as they will be able to receive payments in more currencies and will get a liberated financial connection and better financial coverage. Plus, keeping the sender and receiver information confidential and secure in the blockchains is an added perk.
What makes something valuable and significant is that its positives outweigh its negatives. That said, cryptocurrency has many benefits and has the potential to become the universal currency, but it may take a while for the world to get there.