In recent years, messaging tools such as WhatsApp and Twitter significantly changed the way we communicate, while online apps such as Wallet are reshaping the way we perform fundamental tasks such as payment processing.
Now it’s time to revolutionise the currencies we pay in. Over the last few years, digital currencies and related crypto technology have become one of the hottest areas of investment, with billions invested in the sector. And while digital money is rising in popularity, the critical question is – could cryptocurrency really replace flat cash in the future?
What is Digital Currency?
Let’s start with understanding what cryptocurrency is.
Generally speaking, cryptocurrencies are digital, encrypted currencies designed to work as a medium of exchange. Cryptocurrency uses cryptography to secure and verify transactions and to control the creation of new units of a particular cryptocurrency.
Here are some key facts you should know:
Geographic reach: You can use them to pay for goods and services around the world as they have no geographical or political borders.
How it works: Cryptocurrencies rely on the Internet to guarantee value and confirm transactions. The assets are encrypted and transferred between peers and are later approved in a public ledger (a “digital wallet”) via a process known as mining. The transfers, however, need to be managed by us, away from the banks and other authorities.
Official authority: Most digital currencies are not backed by any central government, which means that each country can have different standards and regulations.
Official types of Digital Currency: Ethereum, Ripple, Litecoin, Dash, Peercoin, Dogecoin, Primecoin, Chinacoin, Ven and Bitcoin
Status of Digital Currency per country
Here is the summary of top countries and their approach to the Digital Currency usage:
• Japan signed bitcoins as legal tender in April 2017. This means that the exchanges are legal if registered with the Japanese Financial Services Agency.
• The United States does not recognise Digital Currency as legal tender. Trading virtual currency is however, permitted in some states such as Alabama and Colorado. According to Cryptocompare, the U.S also handles the second largest volume of Bitcoin (around 26%).
• The United Kingdom recognises pound sterling as the only legal tender in the UK. Nevertheless, The Financial Conduct Authority (FCA) is currently working with the Bank of England and the UK Treasury on a discussion paper for cryptocurrencies as a response to increasing interest in them globally.
• Switzerland confirmed that cryptocurrency is now legal, making the country one of the friendliest in the world when it comes to cryptocurrency. Any cryptocurrency exchanges happening in Switzerland need to be registered with the Swiss Financial Market Supervisory Authority.
Switzerland is also home to “Crypto Valley”, a group of organisations in the town of Zug just outside of Zurich.
• South Korea also classifies Digital Currency as not legal tender. Digital Currency exchange is allowed, but only if registered with South Korea’s Financial Services Commission.
• China’s government banned and shut down domestic cryptocurrency exchanges in 2017, making the Digital Currency illegal. Chinese authorities have blocked more than 120 different cryptocurrency exchanges, and the act is believed to be a response to increasing financial risk and instability.
• India does not classify cryptocurrency as legal tender and is reportedly believed to take further, formal actions to outlaw it. The Indian government is however, interested in Blockchain and is considering exploiting it for financial transactions but without cryptocurrency.
Would Digital Currency replace money?
With digital currency on the rise, many people perceive cryptocurrencies as the future. This is especially true for countries like Zimbabwe and Venezuela, where cryptocurrencies are being used as a significant means of exchange when government-issued currencies have failed because of hyperinflation.
Let’s also consider the number of investments that have already been made. According to CoinMarketCap, in 2017 there were around 1,375 various virtual coins that investors could potentially acquire with the most popular being Bitcoin and Ethereum. And while everything suggests that cryptocurrencies can be likely used to replace flat currencies in the future, there is also a dark side.
Let’s start with technology limitations. Digital currencies cannot be used on a national scale because of the number of transactions per minute many cryptocurrencies can handle. Moreover, as your financial assets are stored virtually, losing your computer-generated wallet means that if your device is gone, your money is as well.
Another con is the lack of transparency and security, which can be a primary source of criminal activity and problems for investors, which can successfully turn most people off from using cryptocurrencies.
There are also a range of political challenges and concerns surrounding cryptocurrencies replacing cash. One of them is the need for change. The entire infrastructure would need to transform and it could take some businesses years to adapt.
Beyond the impact of digital currencies on individual customers and businesses, governments themselves would also suffer. This is because cryptocurrencies are designed to operate in less government control, which means that governments could no longer regulate how many financial assets need to be produced to meet demand.
When we think about using digital currency in the long-run, we can think about possible advantages. One of them is an increased level of difficulty when it comes to manipulating cryptocurrencies, which means that there is no easy way to spread false assets.
But would this be enough to convince the entire population to switch the way they’ve been processing payments? We highly doubt it but there is a high chance that with time the market will have room for cryptocurrency in an equal share, rather than taking over completely.