As such, there is a need for novel financial tools to simplify these processes. To this end, cryptocurrencies can become the most potent monetary tool. Theoretically, they can also act as one of the most versatile financial infrastructure platforms in history. The lack of governance has made crypto cool and increasingly so — with mainstream appeal and recognition surpassing that of many traditional currencies, stocks, and assets. If you are curious about Bitcoin, you can learn here why Bitcoin rides the fintech wave.
Cryptocurrencies are yet to be widely adopted by mainstream markets due to relatively high volatility and slow speeds in comparison with fiat currencies — but investment remains strong as potential returns are attractive given the current low-interest rates environment. In addition, traditional investors are attracted by the possibility that cryptocurrencies could one day be used as a mainstream currency.
Bitcoin getting the limelight:
Bitcoin has been in the limelight for over a decade, and the public is gradually warming to its potential. As a result, we are now seeing an evolution from fiat-crypto to crypto-crypto and then on to crypto-fiat — with an increasing number of exchanges that allow for easy integration with traditional markets, including centralized exchanges.
The recent rise of Bitcoin has increased levels of regulation debate, both from a blockchain technology standpoint and a regulatory perspective on how cryptocurrencies are traded. Blockchain allows users to interact directly without going through centralized intermediaries such as banks or other financial institutions. As a result, it reduces costs and speeds up transaction times.
The distributed nature of the blockchain makes it impossible for anyone to corrupt it — as demonstrated by Proof of Work (POW) and Proof of Stake (PoS) systems. Further, it provides security on demand rather than a traditional centralized authority. However, the regulatory environment surrounding cryptocurrencies is still unclear about their future status — whether they are currencies or commodities — and what would be required for them to be capable of use as a global currency.
What makes cryptocurrency a powerful monetary tool?
1. Cryptocurrencies are borderless and decentralized
Cryptocurrency can be transferred anywhere in the world at any time. Once cryptocurrency is mined, it is then established as a new chain of ownership — allowing for a permanent record of the ownership and land rights. As a result, it can help people with no access to banks or countries suffering from a currency crisis.
Anybody with access to the internet can own and trade cryptocurrency without needing a bank account or permission from any government to do so. As a result, cryptocurrency can be transferred almost immediately across the world — and its value can be agreed upon quickly by a consensus among users through a decentralized process.
Some key benefits make cryptocurrencies an attractive alternative to fiat currencies:
- Speed: Transactions can be executed as fast as 30 seconds (Bitcoin) with an average of 10 minutes, while typical payments in fiat currencies may take more than three days to settle.
- The cost of transactions can be as low as 1-2% (fiat currencies including the US dollar, euro, yen, etc.), depending on the transaction size and network fees involved. It is far less than banks and other financial institutions, charging around 5-6%.
- The possibility of infinite value: This is achieved by allowing people to use cryptocurrency as a store of value rather than limiting how much money can be stored in a bank account. As a result, the price of Bitcoin has increased from US$12 to over US$19,000 in 2017.
2. Cryptocurrencies have near-zero entry costs, limited environmental impact, and allow users to participate in markets with meager trading costs
Just like fiat currency, cryptocurrencies are set up to ensure stability and liquidity — meaning that they attract investors more than speculators or traders looking to profit from significant movements. Users will attract institutional investors to the transparency of cryptocurrency and its ease of use in an already established market. It can help avoid the need to take significant risks while hoping for high returns, which we have seen with traditional financial markets.
Whereas governments or states back fiat currencies, cryptocurrencies are not supported by any physical entity. It brings benefits for users — such as lower transaction costs compared with fiat currencies, as there are no overhead expenses (such as bank fees and interest payments). Cryptocurrency is also easy to exchange in comparison with fiat currency — as it requires no intermediary parties to facilitate a transaction.
3. Cryptocurrencies are not subject to taxes and regulations
Unlike fiat currency, there is no need for a bank account or an ID card to own, trade and use cryptocurrency. Furthermore, unlike stocks and bonds, there are no legal requirements for who can own what percentage of what — as every owner has sole ownership. As such, cryptocurrencies do not require identity verification or collection of personal information as it is not required to purchase the asset. It avoids all the bureaucratic processes involved when dealing with traditional financial institutions in many countries.
4. Cryptocurrencies are linked to a peer-to-peer electronic cash system
They are available without a central repository or single administrator, which makes the ledger immutable. Cryptocurrencies allow operators to hold assets that cannot be seized by governments or other third parties — and which cannot be forged. They also allow for easy transfer of ownership and do not require trust in intermediaries. It means that once you own cryptocurrency, it is yours — regardless of location and you do not need anyone’s permission to trade it.
