Cryptocurrencies right now play a role of complementing the current money transmitter payments system. Banks are tightly regulated and they take up the money creator role. Banks are the source of money creation along with the Federal reserve and Treasury department through Government bonds. So, naturally you frame this question in your mind : Is Crypto the future of money? Yes, even banks think that cryptocurrencies can become the future of money when they take up the money creator role along with increased privacy and security.
Bitcoin and other cryptocurrencies already have the sound money values like fungibility, divisibility and store of value. So, it’s not far that Crypto will become the future of money with it’s faster, immutable and decentralized money transfers. The next decade developments in Cryptocurrencies will make it a much more compelling asset class to invest into and transact in.
Deutsche Bank, one of the largest banks in the world, predicts that number of crypto consumers will expand 4 times more in the next 10 years, growing to a staggering 200 million users.
Historical Evolution of Money
Money is a medium of exchange, and the physical component of itself does not have any value. That is, it is the value that external users such as people and businesses place on it. Money serves two functions:
- To exchange it for products/services with the value equivalent in numerical terms
- To store wealth for long-term
The concept of money was first actually, the ‘Barter’ system. It was more than 3000 years ago. People may exchange physical items for procuring another item/service such that it provides value to both the buyer and the seller. You may see evolution in money from mammoth skins to salt to gold, if you read history.
Cut to 770 BC Chinese invented the first ‘coins’ that had a slight semblance to today’s coins. The need for it was to prevent people from facing the inconvenience of producing the actual commodity during a transaction. Instead, these coins are replicas of those objects in the form of a circle.
At around 700 BC, the Chinese first produced paper currency with various denominations. They also had the initial ‘laws’ for counterfeiting wherein they imposed strict fines for those who indulged in it.
Late during the 1500s to 1600s, Europe took up paper currency for getting goods and services.
Digital Currency Boom in 21st Century
The early 21st century saw a digital currency boom with the increasing usage of the Internet. This form of money is still in development, with virtual payment apps coming up almost every year. These link to bank accounts and help transact with a click of a button.
After the 2010s, virtual currency such as Bitcoin came to the fore. Bitcoin is a unit of currency of the larger ‘cryptocurrency’ form of monetary asset. It is a digitalized currency developed and valued by a network. You can own it, trade with it, and store it for the long-term as an investment.
In the 2020s decade, there is no doubt that digital currency is going to play an integral role in moving value faster and secure and trustless fashion. We may avoid centralization and move to decentralization gradually.
In the long term in 21st century, we may see that the world will move towards a single world currency rather than one fiat currency for each country. Is Crypto still a future currency? Yes, obviously. So, the globalization and trade can prosper in this environment. Also, there will be one or a few central banks rather than one central bank for every country.
The Emergence of Technology to Transfer Money
The use of technology for money transfer is undergoing a continuous evolution since the Internet became a mainstream platform for work and recreation.
Initially, it began with banks going digital through websites where people can ‘see’ the money they have, transfer it to someone, or store it in fixed deposits. The same functionalities even got extended to mobile applications, in a more portable and convenient format.
Following that, payment apps like PayPal entered the financial scene where they acted as ‘storehouses’ for money and easy means to handle your money all from one platform. For instance, you can transfer money from one app user to another, pay your bills, avail of discounts, and even purchase goods/services from one payment application.
The recent times are seeing more domination of Bitcoin and other cryptocurrencies that provides a good argument to believe that crypto is the future. It is enclosed in a technical complex network and has allowed people from anywhere to buy this virtual currency, trade it on various exchanges, and store it with them on crypto-wallets.
Technology has added a layer of security to the digital form of money. With increased emphasis on encryption and cyber-security, some applications and virtual currency apps provide more security than ever, even comparable to a physical hold of money like a bank.
In the US, right now 90% of transactions happens through the digital medium. In the future, this is only going to increase with money going entirely digital. There may be Central Bank Digital Currencies (CBDC) launching on blockchain soon too.
Is Crypto the Future: Adoption of Cryptocurrency versus The Internet
The number of users on the Internet has been higher than ever before. At the end of 2020, almost 59% of the entire population of the world is online. The growth will not stop here. In fact, according to Statista, mobile data traffic is set to touch close to 78 exabytes per month by 2022!
The demand is always high, and technology needs to keep up. Similar is the case with Bitcoin as well. The number of users has been increasing steadily over the years. According to Statista, at the end of Q4 in 2019, almost 40 million users have been using Bitcoin wallets.
So, why is crypto the future? The growth of the Internet and Bitcoin have seen similar phases. Credit to a report published by Deutsche Bank, both technologies had a tough start at their nascent stages. As they progressed, at the 10-year mark, the Internet had close to 500 million users, and Bitcoin had 50 million users. Therefore, the chart published in the report consistently shows a ratio of 10:1 between Internet adoption rates and Bitcoin adoption rates.
Practically it makes sense with the Internet becoming more accessible, cheaper, and faster, people are becoming more interested to hold money in a convenient, hassle-free, and more secure way. Combine that with the high growth potential of Bitcoin and easy investment options; crypto is the future.
Is Crypto the Future: Redefining the Future of Finance
Cryptocurrency is taking the financial world by storm, no doubt. At the time of writing, Crypto is a $650 billion industry, according to Coinmarketcap. Innovation propagates the concept of crypto is the future because they are changing the way you invest, earn, and spend. Cryptocurrency will soon redefine the future of finance.
But, let’s take a quick look at how the progress of cryptocurrency has been since the last decade with the launch of Bitcoin. We need to reminisce the important events to understand crypto better and how to use crypto to shape the future of money.
Bitcoin Launch
Bitcoin emerged as a new form of exchange, and fewer people know that similar efforts had been put before that. Some of the failures before Bitcoin were Hashcash, RPOW, Bitgold, etc.
On January 3rd, 2009, Satoshi Nakamoto that is a false name for an actual trader created the first Bitcoin block, and the first transaction of 10 BTC took place nine days later. Satoshi Nakamoto can be one person or a group of people or an organization or a group of organization. No one knows at this point, who Satoshi Nakamoto is. Bitcoin uses most of the features from previous experiments of decentralization and is a much better shot at becoming the future money.
On October 5th, 2009, the first-ever exchange rate was given for Bitcoin where $1 could fetch 1309.03 Bitcoins. Going forward in the next year, the first Bitcoin transaction for a commodity took place, and MtGox, which was one of the largest initial Bitcoin trading platforms was born.
On December 12th, 2010, Satoshi Nakamoto disappeared from the scene and handed over the entirety of the Bitcoin project to Gavin Andresen, an active developer to date.
Launch of Litecoin
At the time of launch, Litecoin was one of the first altcoins. Charlie Lee is the founder of Litecoin. The initial price for $0.3 for a single coin in 2011, and it evolved rather slowly over the next two years to reach $3.
In November 2013, the price of Bitcoin was $50 after a marvellous Bullrun but only to fall back after a tough year in 2014 to $1 at the start of 2015.
Litecoins saw similar patterns of up and down throughout its history of 10 years approximately, with the price at the time of writing close to $100 per coin.
Launch of Ripple
Back in 2004, Ripple was one of the first companies trying to mimic the payment applications of today. The founders, Chris Larsen and Jed McCaleb, wanted to build a trusted network P2P, and their overall intention was to replace banks.
Why?
Because according to them, the core working of a bank was just a payment system that updated the balances of loans of one person. Instead, peers could directly give loans to one other, provided there is sufficient trust between them.
In 2011, Ripple started providing its coin, XRP that remains a cryptocurrency option and one of the largest in capitalization.
But, Ripple did not gain much traction as much as Bitcoin in the initial days. Ripple released a token XRP to be the circulating value in the network. XRP blockchain is currently centralized but will become decentralized in the future by building a peer-to-peer network that works without Ripple. The best part of Ripple is that it’s transaction is near instant at all times and can be a good contender for Payments than Bitcoin which processes really low transactions per second.
Only concern with Ripple since launch is it’s centralization. So, the token can be classified as security and may be subject to US Security laws. is xrp the future? That depends on what the SEC and CFTC classify the coin to be.
Ethereum Launch
The founder of Ethereum initially Buterin found out that the Bitcoin blockchain did not address all the use-cases of Bitcoin. Considering his mission to build crypto is the future, he got to work with other co-founders of Ethereum to launch the first release in 2015 in response to massive interest.
Initially, he had released a white paper in 2013 describing a platform that addresses much more financial cases than Bitcoin could ever. This went on in the future to become Ethereum.
Today, more than hundreds of developers work at one of the fastest-growing cryptocurrencies in the world. Although it had its share of downfalls and ups, one of the highlights was the 13,000% increase in its price in 2017. is Ethereum the future? Yes, because Ethereum has the biggest number of developers by far than other cryptocurrencies like even Bitcoin, which had a much bigger head start. Also, Ethereum’s smart contracts may be the foundation of future finance.
Having said that, the platform is still new, and with a growing interest in cryptocurrencies in general, crypto is the future.
The Price of Bitcoin Reaching $1000 Per Coin
The major take-off of Bitcoin was in 2013 when the volatility of prices was first seen. At the beginning of the year, Bitcoin had been steadily trading at $13.50 per coin. In April, the price rose to $220 for a short period, before falling again to around $70 in the same month. But it was in October of the same year when for the first time, each Bitcoin was trading at $1000.
More or less, the price of Bitcoin circled $1,000 till around 2017 when it took off to reach five figures in the coming months.
Overall, there were a lot of ups and downs for the cryptocurrency in 2013, and so was the same pattern in the upcoming years as well. However, the currency’s net price has always been increasing with current prices touching close to $19,000. At the end of 2020, Bitcoin crossed it’s previous all time highs to reach around 24K USD per Bitcoin, at the time of writing. Experts also believe it to reach six and even seven figures in the coming decades!
Is Crypto the Future for Finance?
Cryptocurrency is more than ‘money’. It is indeed redefining the way finance works and crypto is the future. It is no longer the conventional paper notes and metal coins, all the money is created by a network and stored in a network. The value transfer happens with a coin or token that gets circulated on the blockchain. The blockchain remains secure through its immutability and many miners across the world verifying transactions in a block. This happens round the clock, so the network is always secure.
Most Cryptocurrencies are now moving from proof of work to proof of stake, where there are no miners. Instead, people with coins or tokens stake their own coins to secure the network. If there is a bad actor in verifying transactions, they will face a penalty and potentially will lose the right to be a staker in the future.
Here are some of the ways, cryptocurrency is changing the world of finance:
Crypto in Payments
Businesses and customers are slowly considering Bitcoins and other forms of cryptocurrency as a mode of payment. It is similar to how digital payment apps work, where you can store money in the form of Bitcoins, transfer it to the beneficiary or accept payments from them. PayPal has launched its crypto trading service within the app through which users will be able to buy, sell, and store cryptocurrencies. It also aligns with increasing customer interest in making purchases through their smartphones. According to research by Forbes.com, 72% of E-commerce sales will be through a mobile phone by 2021. Cryptocurrency is stored on a ledger called blockchain that more secure since it is unalterable.
Crypto in Privacy
The transparency levels in Bitcoin is something not all users earlier knew. Every Bitcoin transaction is public. No, it does not mean it is unsafe! It is stored forever on the Bitcoin network blockchain, and no one can alter that. The security part of it lies in the Bitcoin addresses that define where to store Bitcoin. That is supposed to a secret. Yes, you might need to reveal them to purchase goods or services, but there are tons of other security and encryption methods in place so that no unauthorized user can access your Bitcoin without your consent. You should use a new Bitcoin address whenever you get a new payment from someone, and you can also have multiple Bitcoin wallets for storing money for many purposes.
Crypto Decentralization
Decentralization is a positive trait that makes cryptocurrency more stable in the long run. The concept of decentralization involves equal rights for any user/participant to participate in the network. It belongs to no single country or organization. As opposed to centralization, where the power rests at the top level of the authority, any malfunction there can result in the collapse of the system. One example is currencies going down in value severely in countries that have political unrest.
Crypto as Store of Value
In financial value, a store of value is an asset that can retain its value over a long period. Typical examples are gold, real estate, etc. which you would not expect to deteriorate in its value. Ever since Bitcoin entered the financial world, proponents claim it to be the ‘new digital gold’. is the future of money gold crypto or fiat? It’s definitely Crypto. Read more to understand.
Even though cryptocurrency is insanely volatile on a longer range, the price is about to increase according to many cryptocurrency experts. One of the arguments they give to support this is Bitcoin scarcity. That is, there is a maximum limit of 21 million Bitcoins through mining.
With the growing interest in cryptocurrency around the world and investments in millions of dollars coming in every year, there is more demand than supply. It could stay the same because of the maximum limit, decentralization, Bitcoin halving, etc. Thus, crypto is the future of investment in the long run.
At the time of writing, there will be no one who will have any losses in Bitcoin at the moment, even if they bought at the peak of 2017 at $19K. Bitcoin price now is at $24K, at the time of writing. So, that’s why Bitcoin is a store of value.
The other side is you see all the central governments printing money continuously to support people in Covid-19 pandemic. It may be the right move now, but the increase in money supply causes more inflation in the long run. Consequently, dollar loses more value and depreciates. That means, Bitcoin and precious metals may appreciate much more.
Crypto Stablecoins
Cryptocurrencies will definitely have wild volatility because of their smaller market capitalization, in comparison to other asset classes. Stablecoins try to reduce that one disadvantage of Crypto volatility.
Stable coin limits the volatility of the trader/investor by trying to peg its value to a fiat currency like the USD. Some of the major crypto stablecoins are
- USDC – Coinbase and Circle with their partnership CENTRE issue USDC, with a 1:1 peg to the US Dollar
- USDT – Tether is the pioneer of Stablecoins but controversial too, because of no transparent audits
- Paxos Standard – Paxos Standard and Paxos Gold are some of the stablecoins by Paxos to peg against USD and Gold
- GUSD – Gemini USD is the stablecoin from Gemini Exchange
- BUSD – Binance USD is the stable coin from Binance Exchange
Paxos Standard and Gemini Dollar have got regulatory approval from the New York State Department of Financial Services (NYDFS) to trade, buy, or sell with New York residents. Generally, New York has the most restrictions.
Since these coins are stable, it helps further crypto adoption in payments and transactions for businesses and consumers. Merchants can accept crypto and immediately liquidate into stable coin, so they don’t lose anything in the transaction.
Crypto in Digital Ownership
Small businesses compete wildly in the e-commerce space, and there is just too much competition there for any to survive. And in many e-commerce platforms, the digital assets are almost always owned by the platform. Bitcoin-based platforms can give full authority to small businesses to own data, technology, and assets. The owners of the product/service decide what goes on the landing pages of their product/service, how it is presented and accessed. Since the data is secure on a blockchain, these small businesses no longer have to be dependent on algorithms created by another party. It could be one of the early steps to bring on crypto in the future.
Bitcoin Digital Gold
This cryptocurrency is a good store of wealth. One reason for it is that it is still in the nascent stages and there is growing optimism about its rise in value in the coming years. Bitcoin becoming a transactional currency like fiat currencies could a few years or even decades away, but companies have already been investing millions of dollars in Bitcoin with the hope that its value will increase in the coming years. At the beginning of 2020, the total market size of Bitcoin was $195 billion, and it increased almost two-fold to $397.9 billion by the end of the year.
Decentralized Application (dApp)
A dApp is a digital application that runs on the blockchain and is not controlled by one authority. A typical example of a conventional application is Uber, where there are millions of users on one side, the authority owning it has full power to decide the working, functionalities, and features of the app. On the other hand, websites like Bit-torrent are decentralized, meaning users can consume, feed, or seed the content and perform these functions simultaneously. A developer can create almost any form of app or website on a decentralized basis, and no single authority can have control over the content on it.
Is Crypto the Future: Crypto Challenges
Regulatory Compliance
Cryptocurrency regulations in the United States are still evolving. There is confusion on the recognition of it amongst the different federal financial bodies. Regulatory compliance is the main reason there are doubts in average people minds to adopt Cryptocurrency.
For instance, the Securities and Exchange Commission calls it ‘securities’ and it wants to apply the same laws for securities for cryptocurrencies. On the other hand, the Commodities Futures Trading Commission calls it a ‘commodity’ and allows public trade of cryptocurrency derivates. SEC, CFTC and FINCEN are creating new rules every year and there are new impediments for the Crypto space to advance quickly.
Crypto Exchange Security
Since cryptocurrency is one of the newest financial assets, security is its biggest challenge to date. Exchanges that do not follow levels of security have been frequent targets of hacking and cyber-attacks. Such attacks also devalue the cryptocurrency significantly. Apart from this, even hardware wallets for Bitcoins have vulnerabilities that can be exploited by expert hackers. They use this to intercept the communication between these wallets and the PC and transfer it to themselves instead.
There have been multiple hacks in Crypto Exchanges like Bitfinex, Coincheck, Kucoin, Binance, Upbit, Bithumb, Coinbene, Coinmama, Cryptopia, QuadrigaCX etc. See how many big exchanges were hacked in just the last 4 years. So, don’t keep all your coins in an Exchange hot wallet.
Crypto Taxes
The Internal Revenue Service (IRS) in the US considers crypto as a property and not currency, therefore, it is taxable. All purchases of crypto, conversions, payments, donations, and income in crypto needs to be filed with the tax authorities and are more or less taxed. Here are the taxable events for crypto:
- If you exchange cryptocurrency for cash (fiat currency)
- Using cryptocurrency to buy a product/service
- If you convert one crypto to another (trading crypto on an exchange)
- Receiving crypto through mining is counted as an earned income
- If you are paid in crypto by your employer, it is taxed according to the income tax brackets
- If you receive some kind of rewards in crypto
These transactions need to be filed with the authorities with the fair market value, which is measured in USD.
Crypto is Not Anonymous, it is Pseudonyms
To understand this, first, understand a bitcoin address. It is similar to an email address, that is you need to send and receive bitcoins. But the online ledger of Bitcoin is public. Everyone can see the transactions made on the blockchain. But of course, only your Bitcoin address is recorded and not your identity.
But, expert hackers and cyber-attackers have been able to link identities with Bitcoin addresses available publicly. There is a vulnerability here if you look. For instance, if you use Bitcoin to purchase items from an online e-commerce store that also takes your customer information, they can potentially connect your identity with the address intentionally or not.
Privacy experts want the use of mixers and other privacy signatures to come in to wide use. But, the industry is fearing regulation and the difficulty in co-operating with enforcement authorities if they implement more privacy and make it difficult to get data, in case of bad actors exploiting it.
Massive Players in the Crypto Landscape
One interesting fact about cryptocurrency is that any purchase can drive up prices considerably. Here are some players operating today:
Institutional Investors
2020 saw some big news from big corporations and institutions who believe, crypto is the future. They have invested millions of dollars in Bitcoin. Such a transaction increases the demand for Bitcoin, causing its prices to rise while the supply stays the same.
Wall Street Trade Firms
Cryptocurrency is becoming a mainstream part of an investor’s portfolio. One reason for it could be the fact that there has been no fraud transaction recorded to date. Wall Street brokers have been showing interest after Goldman Sachs makes its intention about opening a bitcoin trading platform public. Intercontinental Exchange, the parent company of the New York Stock Exchange is perhaps working on a bitcoin trading platform. Some exchanges are also providing Bitcoin futures contracts to their customers, thus allowing themselves to be a part of the market without any ownership.
Big Traditional Exchanges
Exchanges that have been in the cryptocurrency scene for the longest time have naturally gained a lot of users. Cryptocurrency has this unique feature of being able to be moved by a lot of trades in one direction or large investments. Sometimes, if one traditional big exchange has a significant number of traders trading in a similar way for a single cryptocurrency, it can impact its price accordingly.
Banks and Investment Banks
News had been running around in 2020 of possible collaborative relationships between cryptocurrency companies and traditional banks. According to a news report, JP Morgan will provide cash management services to the exchanges it owns. They have been supportive of cryptocurrencies who agree that crypto is the future indeed, if they follow proper regulations. Public perception of cryptocurrency can influence significantly if collaboration with banks works.
Tech Companies
They have been incredibly active in investing in cryptocurrency in 2020. Not only do these large investments drive the price of a single Bitcoin, but they provide more technicalities for trading on cryptocurrencies as well. For instance, Square, a payments platform purchased 4,709 bitcoins after a total investment of $50 Million. Before this MicroStrategy invested a staggering $450 million in Bitcoins and crowned the crypto asset as its crowned treasury.
What is the Future of Cryptocurrencies?
Is cryptocurrency the future currency? Yes, crypto is the future of money, indeed. Yes, it has its downfalls as of now but the general optimism towards a universal currency, increase in its value due to limited supply can outweigh these. Here are some key points to ask if crypto is the future:
Privacy Improvement Through Crypto
While sharing the transaction data on the blockchain network is beneficial for more assurance and transparency, it may be hard for industries whose data is sensitive. To address these particular issues, many projects around crypto are now looking at privacy-preserving mechanisms, which will only allow data to be visible for a user with assurance that it will not tamper. Some of these technologies are Multi-Party Computation and zero-knowledge proofs. In very general terms, these encrypt the shared data and only keep that part visible required for a specific purpose.
Universal Access Through Crypto
Access to crypto from people all over the world is broadly driven by two factors. One, the regulations in a particular country that bind people into executing specific tasks with crypto and maybe pay taxes for it. Two, the existence and accessibility of trust-worthy crypto exchanges in that country. Although, one can expect the second to fulfill once the regulations become lenient to trade. Is crypto still a future currency? Yes, if the authorities accept it. Going ahead, to win the authorities, crypto has to prove solid in security because that is one thing that is holding any government back.
Making People Becoming Their Own Bank with Crypto
With crypto-wallets already on the scene, people can send, receive, and store money on these wallets. If the future makes conversion between cryptocurrencies and fiat currencies more seamless, people can virtually become their bankers. You can convert to cryptocurrency, trade on it, gain profits and convert it back to fiat currency and vice versa. You will be entirely responsible for storing, growing, and spending the money, just like how a bank operates. But for this to happen, services must develop in the future, and they must be made secure and seamless.
Improve Payment Settlement Efficiency Through Crypto
Cryptocurrencies at one point will enable payments for goods/services just like fiat currencies. Enabling technology for that is the crypto wallets that already exist today. You can transfer money from one person to another by their wallet address. Some companies are already springing up like BitPay that allows merchants to accept and store payments in Bitcoins. The main advantage of cryptocurrencies is that they are on a public blockchain that removes the need for third parties to verify the transactions, thus giving access to faster and cheaper payment options for people regardless of borders.
Create Programmable Money Through Crypto
Programmable money is coming very soon. Is Crypto really the future? By programming money with Crypto smart contracts, money becomes more smart.
To better understand this, consider food tokens or coupons given to users which they can avail to only spend on something or somewhere specific, say for meals or drinks. These ‘coupons’ are digital tokens in a crypto sense. They transact on the blockchain-enabled with smart contracts. In a nutshell, programmable money is normal money with some constraints to its spending.
Robust Security with Crypto Immutability and Traceability
Immutability is a property where bad actors cannot alter the blockchain after the miners confirm the transaction to be legitimate. Future blockchains will be more robust with multiple nodes working together to maintain a decentralized blockchain system. Any external hacker will have to spend tons of effort (in money and technology) to compromise these nodes. Immutability ensures data is more integral, and nobody can doubt the authenticity once it is on the blockchain.
Traceability is linked deeply to this. If the data on the blockchain cannot be altered, then the authentic history will automatically be maintained. It is a great feature for auditing and offers companies to get a wide variety of data analytics from the blockchain without worrying about the integrity and authenticity of the data.
Takeaway – Is Crypto the Future Of Money?
Is blockchain the future? Yes indeed, crypto is the future of money. It is evolving rapidly and may change entirely how the financial world works. But, it will take time to entirely replace current fiat currencies and banking systems.
If Crypto happens to be the future, you need to understand how to day trade crypto. You may need to understand what are the best crypto exchanges for US investors to acquire Crypto. After you acquire Crypto, learn how to store Crypto offline.
To become the future of money, cryptocurrencies must address the flaws in their systems, and make them as robust and trustworthy as possible. Developers and organizations are putting a constant effort to better the blockchain network and make it more authentic in the public image. That will be the key going ahead to increase the demand and keep the Bitcoin price more stable and rising high.
