Investopedia clarifies cryptocurrency as a digital currency created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. Bitcoins are created digitally through a “mining” process that requires powerful computers to solve complex algorithms and crunch numbers. They are currently created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a level that is expected to be reached in 2140. In addition, local currency deposits are generally insured against bank failures by a government body. Bitcoin, on the other hand, has no such support mechanisms. The value of a Bitcoin is wholly dependent on what investors are willing to pay for it at a point in time. As well, if a Bitcoin exchange folds up, clients with Bitcoin balances have no recourse to get them back.
I don’t know about you, but I find the entire Bitcoin frenzy perplexing. In fact, I am somewhat befuddled by the entire cryptocurrency phenomena in general. I’m not entirely for it or against it. Perhaps, it’s more about skepticism, which is normal when new systems are introduced to replace old ones. I do know that Bitcoin fluctuates wildly, it’s dependent on the Internet to function, and it’s not widely accepted...yet. Privacy will literally go out the window if we change over to digital currencies. Sure, they say that Bitcoin and other cryptocurrencies will bypass the banks literally eliminating the middleman. Even so, I don’t think this is going to happen if crypto/digital currencies are accepted as a type of exchange trusted by the general public. Central banks will get their hands in there, for sure!
If we convert to a digital currency or cashless society, all transactions will be recorded. At the moment, if you pay for your items with cash, it’s done, that’s it! You have complete control over how you use your currency and your transactions are basically anonymous. Imagine a cashless society. Just think what could happen if the banks, for whatever reason, decide to withhold your funds? Sure, they can do that now. But most individuals use more than one bank. With digital currencies, all banks will be interconnected. Therefore, if Bank A is withholding your funds, you can’t run to Bank B. All financial institutions will be under the same system with your data. If one bank pulls the plug, the others will too. Credit and debit cards are a form of digital currency; however, their usage depends on how much cash you earn or have. Going completely digital will exclude cash altogether.
One financial expert, you can check him out here, summed up cryptocurrencies in this way: In the digital world you can create just about any fantasy. A beautiful digital home filled with digital furniture, a digital neighborhood with digital stores and digital food. Except you can’t live in your digital home, sit or sleep on your digital furniture, or eat your digital food. Digital currencies are similar. They are designed out of thin air with nothing to back them. Okay, I admit fiat currencies are similar but that’s for another article. Try purchasing a home, car, or groceries with digital currency. You won’t have much luck...at least not yet. In addition, there are hundreds of cryptocurrencies. In addition, plenty of online information can be found online defending both sides of the cryptocurrency issue.
There are many challenges facing cryptocurrencies. Seeing that cryptos are dependent on the Internet, a computer crash could cause your digital currency to disappear, forever! What about hackers? These uncertainties may be eradicated as technology progresses. Still, I agree with the words from Investopedia “the more popular they become, the more regulation and government scrutiny they are likely to attract, which erodes the fundamental premise for their existence.” What do you think?