Future of Cryptocurrency
Cryptocurrency has become a global phenomenon in recent years, although much is still to be learned about this evolving technology. There are many concerns and worries swirling around technology and its capacity to disrupt traditional financial systems.
Bitcoin is not the future. It is the present. The cryptocurrencies are already here to rule. Or, at least that’s what they say. Fine, a point accepted. So, can I buy my new car using Bitcoin? Not yet, not even if it’s a Tesla. Okay, so can I buy a new smartphone using it? Not really. Eh, maybe a pizza for Friday evening? Not really, you will still have to use fiat currency for that. Will I ever be able to? Will Bitcoin and other cryptocurrencies replace Rupees, Dollars, and other fiat currencies? Well, it’s complicated. Let us explain.
Facebook’s contribution to the cryptocurrency world — Libra — has been hyped in some corners as the answer to a variety of financial issues. In particular, the platform was designed to facilitate international payments and eliminate unnecessary transaction costs and fees.
Stable coins have grown in popularity as a way to back a cryptocurrency with assets that hold real value, much in the same way U.S. currency used to be on the gold standard. Those assets could be other currencies or commodities — virtually anything, really.
Technically speaking, anything can qualify as money as long as the receiver and sender agree. That’s how the barter system existed for years. People would get rice in exchange for flour. Or, salt in exchange for sugar. Until they realized that not everything is available or can be grown in the same amount. This made certain goods more valuable than others. For example, 1 liter of petrol is more valuable than 1 liter of water.
The paper currency has helped achieve some stability and has attached value to every good and service. There is a generation that believes that paper currency may also lose its value or perish like other currencies over a period of time. One of their concerns was also around the centralization of fiat currency which gives power to banks and governments over the hard-earned money of people.
On top of that, many investors have also not looked at crypto as a payment method. They are using it to invest money and grow it quickly in comparison to a stock market or mutual funds. This is why a lot of coins haven't really changed their IP address in last few years, which means people are mostly hoarding them. Even a country like the US, where the acceptance is more than India, is far away from truly embracing crypto.
There is no doubt that digital currency is the future. High chance that by the end of this decade, physical wallets will extinct, and you will store money on your smartphones but, that money is unlikely to be just crypto. There are governments that are trying to work on their own digital money, including India. There have been reports of RBI introducing a digital rupee in near future, and it has better odds of outlasting cryptocurrencies.
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Cryptocurrency’s future outlook is still very much in question. Proponents see limitless potential, while critics see nothing but risk. Professor Grundfest remains a skeptic, but he does concede that there are certain applications where cryptocurrency is a viable solution. Yet, Bitcoin, Ethereum, Ripple, etc are likely to remain parts of our lives in the future -as money, investment options, commodities, assets, or some other form.
If cryptocurrency adoption is a headache for governments, the overwhelming popularity of digital cash could also be an issue. Banks could lose deposits should customers prefer having a direct claim on their monetary authorities. Lenders financing long-term loans with short-term market liquidity might get into trouble later. These risks aren’t new. But by ignoring them to a point where subprime mortgage-linked banking losses had to be socialized, authorities created a trust gap with the public: Techno-anarchists burst through it with the template for an electronic payment system based on cryptographic proof instead of trust.