By now, having friends who have invested in Bitcoin or Ethereum is commonplace. And news websites declaring big names supporting or condemning cryptocurrencies have made their splash on headlines and are now old news. Research has even shown that ICO returns for cryptocurrencies are a whopping 1320% on average! That means that a blind investment in every initial coin offering (ICO) to date would have generated an average return of more than ten times the initial offering.
With all this hype about cryptocurrency going around, it is good to know what all this hype is actually about and why it may be changing the way our world works at this very moment.
What is cryptocurrency?
Cryptocurrency is essentially a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, and it operates independently of a bank or government. So cryptocurrency, in simple terms, exists just like a computer code.
What this means is that cryptocurrency, or crypto for short, is a form of legal tender that exists online. Though it is not yet widely used as a form of currency, people believe in its potential, and hence so many people from all over the world have been investing in it. Bitcoin, which was the first ever crypto was created in late 2008 where the creator aimed to create a decentralized digital cash system. Little did he know he would be revolutionising the way money works completely.
So why did people even feel that there was a need for a new form of currency? It had to do with the fact that they found that money right now wasn’t the most efficient currency. That is why, in 2008, Bitcoin was created.
The Problem with Money Today
If someone on the street were to ask me if I had a problem with the way that money works right now, I would frankly tell them no because money works fine for me and I am sure most of us would say the same. Money fulfils the basic functions required for it to be considered a “good currency”. This means that money is a reasonable store of value, a unit of account and a medium of exchange.
Though money does serve these functions, there are other functions that it does not fulfil quite as well yet, which is why people are drawn to come up with alternatives. These functions include durability, divisibility, uniformity, portability, acceptability and rarity.
While we can accept that money does fulfil this to a certain degree, we know it’s not an infinitely ensured thing.
Let us look at durability, for instance. Money goes through wear and tear and eventually becomes unusable, so it is not that durable. If we look at portability, then we know there is a limit of cash we can bring with us. It simply isn’t wise to carry a large amount of cash nor keep withdrawing from the ATMs. Because of different currencies being used worldwide, we know that acceptability isn’t the case. We won’t be able to use 2 USD to buy something in London worth 4 British pounds. There are also reprints of notes every few years which means that uniformity isn’t attained either. With all this in mind, it is clear that money today is not the best form of conducting transactions.
How is Crypto Better?
Crypto, on the other hand, is much more efficient given all these factors. It is more durable because it isn’t even a physical form of money. So, it cannot be destroyed because it has no physical matter to be destroyed. Similarly, because of its electronic nature, it is extremely portable. Each unit is also fungible meaning that one bitcoin will always be the same as any other bitcoin. Cryptos also have a hard limit determined by the software, and hence no outside force has the right to decide the supply. Given all this, it is evident that crypto is the superior currency.
The main reason why crypto is doing so well and has got everyone so hyped up is mostly that of this technology called “blockchain”. Because of blockchain, the ledger for these crypto resides on thousands of computers, which results in much greater security. Suppose a hacker or a robber decides to hack or rob a bank to steal your money; there is just one point of attack, so it is less secure and is, in essence, easier for the hacker to do so.
This is how big companies like IBM and JP Morgan got hacked in the past as well. Thanks to blockchain, however, since there are so many points of attack that a hacker would have to go through to be successful, it makes it extra safe for transaction purposes especially compared to ordinary money.
Not only that, transactions through crypto are faster than money as well making it superior to money. This is because there is no middle-man involved. As mentioned earlier, cryptocurrency works independently from banks or governments. Which means that, unlike other transactions, the transaction does not have to go through a bank first and is as it is.
Why is Crypto not Widely Used Yet?
Despite crypto doing so well, many are still unsure about it. Why hasn’t it become the dominant currency yet, one may ask given that it is that much better than money. The answer to this is simply because change takes time. People are comfortable with money in its current form. It is what they grew up with, and it is what they understand, and people cannot just change their lifestyle overnight.
Secondly, though cryptos are superior to money in several ways, they are still not generally accepted yet. Cryptocurrency is not a form of payment commonly used by retailers as of this moment so it can not be the ideal currency at this point.
People are also sceptical because crypto is still so new. And because it is new, it is easily manipulated. This was seen from the Bitconnect Ponzi scheme where a company worth billions ended up being an untrustworthy company and people lost a lot of their money.
In a speculative mania, it can be difficult to tell what is real or not and hence; people are scared.
However, this shouldn’t deter them as, in the long run, cryptocurrency does indeed have the potential to change the world. It is still in its nascent stages and already so successful. Given time and proper maintenance, as well as upgrades, it can change the way the financial world works as we know it.
Wrapping it up
Overall, the evolution of cryptocurrency is an ongoing one and is beautiful to watch it grow to what it has become from its early days in 2008. It is becoming more and more evident to people that our current form of money will not last as it is flawed, and crypto tackles many of those problems head on making it an ideal solution. However, there are still some setbacks, and once they are addressed, I do firmly believe that cryptocurrency will eventually be the currency of the future.