Not backed by anything? Not governed by anyone? It’s easy to see why many think cryptocurrency is a scam. In-your-face advertisements about crypto wallets, coins and trading platforms floating around the internet doesn’t do much to make it seem more legitimate either.
We know – there are lots of flaws with cryptocurrency. In fact, it gets quite a bit of bad press. However, there is a real possibility that cryptocurrency could become the new “money”. With an advanced technology, cryptocurrency has a great potential in becoming incorporated into our financial world in a big way. And perhaps – just perhaps – it could replace fiat money as a means of transaction.
How money came about
Why would we adopt a currency used largely by the dark web as a means of transaction? To understand cryptocurrency’s potential, it’s important to first take a look at the history and development of money.
Before we started using fiat money, we started with barter trade. That means trading with cattle, chickens and harvested fruits. People bartered goods they had in surplus for items they lacked. Although barter trade was effective in allowing people to exchange for goods they didn’t have, it’s not the most efficient means of transaction. It’s kind of a hassle to bring all your goods with you to barter, so people started to develop a new means of transaction.
To solve this problem, people in China started using small replicas of goods cast from bronze so they don’t have to bring their cattle with them everywhere they went. Additionally, coastal regions around the Indian Ocean – an area with high levels of trading activity – also started to develop new means of transaction by using cowrie shells. After some time, coinage became standardised and trade started to flourish. Not only are coins more portable, pricing goods also became much easier!
Although carrying around pieces of gold has brought about more convenience, carrying around large amounts of gold is still a hassle. Gold is incredibly heavy in large quantities and people started to look for a new solution. Enter fiat money, or “paper money”.
Fiat money itself doesn’t have any intrinsic value – it’s really just a piece of paper. It only has value because a government maintains its value or because parties involved in a transaction agree that these pieces of paper are worth something. By looking at the developments of money, you can see that the way we think of money has evolved overtime. In fact, what we recognise as “money” today is a rather abstract concept compared to thousands of years ago, when people were trading with actual goods.
Where are we headed to now?
Today, we have lots of cashless modes of payment. You can pay by card, Apple Pay, Nets, and many more. Fintech is fast developing in our globalised world because of our need to perform cross border transactions. With the e-commerce industry growing at a rapid pace, cashless modes of payment are all the rage right now. After all, it’s impossible to pay for something you ordered online with cash from your wallet, isn’t it?
So we have fintech but why is there a need for cryptocurrency?
Shipping fees, conversion fees, exchange rates – these are just some of the extra fees consumers need to shoulder when we’re making cross border payments. Because of these high fees, cryptocurrency was developed. Cryptocurrency’s peer-to-peer transaction model was designed to cut away banks, institutions and other fees so that consumers don’t have to shoulder high transaction costs.
Will cryptocurrency be the future?
Granted, cryptocurrency is still in its infancy but countries such as South Korea and Switzerland are already adopting and implementing regulations for the cryptocurrency market. The United States house of Representatives have even stated that cryptocurrency is the “future of money”. Whether governments like it or not, as more and more people become interested in cryptocurrency, more attention will need to be given to this emerging industry.
The future is not here yet
Although cryptocurrency still needs to be matured through technological improvements, a large part of whether it becomes the future of monetary transaction depends on people’s mindsets. At the moment, cryptocurrency is largely treated as a form of speculative investment. Prices of cryptocurrency fluctuate drastically from hour-to-hour, day-to-day. In order for cryptocurrency to be adopted as a commonly used means of transaction, it first needs to be stable. Just as how you wake up each day knowing roughly what a dollar can get you, we need to know what one Bitcoin can buy today will roughly be the same as what it can buy tomorrow.
For this to happen, cryptocurrency first needs to move away from being treated just as a form of speculative investment. It can only be a reliable means of transaction when mindsets are changed, when people stop treating cryptocurrency as a get-rich-quick scheme.