The transition of money has been exciting, looking back. From grains to precious metals to paper, money has been all this and more. Remember the times when a bank card was a luxury, something that only the rich could possess? Today, everybody has plenty of them. And we are now witnessing the times of digital money on blockchain technology.
The evolution of money is ongoing with the introduction of cryptocurrencies. Are cryptocurrencies for everyone? Are they the future of money as we know it?
Cryptocurrencies set to transform global finance
In the last decade, cryptocurrencies have been one of the most innovative technologies to be developed. Their inherent features aim to eliminate many shortcomings of fiat money. One of them is centralization, where few institutions control the production and distribution of money. Centralized control also affects cross-border money transfers as many intermediaries are involved. As a result, global transactions take days, or even weeks, to be completed.
Cryptocurrencies use blockchain technology to improve transparency, something that is dearly missing in fiat currencies. This is because unlike banks that act as intermediaries in fiat transactions, there are no third parties involved when cryptocurrencies are transferred from one point to another. Crypto transactions are validated by a network consensus and the information recorded on a shared ledger. The ledger can be accessed by anyone, thereby, improving transparency.
Lastly, cryptocurrencies have introduced a level of security not previously experienced with settlements involving fiat. Theft and fraud is a significant problem affecting traditional money. Cryptocurrencies are secure since they utilize cryptography to mask all the transactions. Therefore, even when implemented on a big scale, the threat of having to deal with fraud cases is essentially eliminated.
Current challenges
Despite their advantages, cryptocurrencies have not gained widespread adoption due to a number of key challenges. Most importantly, cryptocurrencies cannot easily be transformed into hard cash or electronic money for online payments. This is an area where fiat money has excelled. Cash in one’s bank account can easily be used for any payment. Cryptocurrencies can not.
There now exist multiple cryptocurrencies that are vying for the coveted spot as the market leader. Apart from Ether and Bitcoin, most other cryptocurrencies cannot be easily exchanged among themselves. Thus, it is even less convenient to use them for payments. A good medium of exchange as traditional currencies has to be accepted by all parties involved in the system. But it doesn’t work for crypto.