Cryptocurrency is changing the way we do things. You can trade in crypto, be paid in crypto, and pay for all manner of goods and services in crypto. It could even be said that cryptocurrency is a part of our cultural shift to a fully digitized society.
Many think that the first cryptocurrency was Bitcoin and that’s where the crypto story began. In fact, the concept of cryptocurrency was first invented in 1983 by cryptographer David Chaum who came up with electronic cash (ecash). Then, in 1996, the National Security Agency in the United States published a document on anonymous electronic money, protected by cryptography. Two years later, Nick Szabo coined the name ‘bit gold’ which used a proof-of-work function to generate coins.
Then came Bitcoin. In 2009, the pseudonym Satoshi Nakamoto launched what would become the world’s first, widely used cryptocurrency, and thus the digital revolution began.
While technology fans and alternative culture advocates were quick to embrace decentralized virtual currencies, others were not so sure. For many years, bitcoin and the like languished under claims that it would fizzle out, was not reliable, or would not be suitable for widespread adoption. Many of the early cynics have since changed their mind and cryptocurrency has gone on to infiltrate many aspects of our society.
As of 2020, there are over 2,000 cryptocurrencies with more being launched each day. Some are successful, popular, and widely used, others not so much. The top crypto’s in the world include Bitcoin, Bitcoin Cash, Litecoin, Ethereum, Ripple, Tron, Binance Coin, and Tether. Some countries have even launched their own state-backed coins including China and its YuanPay Group Token.
A growing number of online merchants and eCommerce sites now accept cryptocurrency payments and users can pay for a wide range of services using certain coins. Crypto is also accepted in brick-and-mortar locations and credit and debit card processing giants Visa and MasterCard are looking at ways to further facilitate crypto payments. But beyond crypto, the technology that underpins coins- blockchain, is starting a movement of its own.
A decentralized, distributed ledger, blockchain allows transactions and actions to be carried out that is 100% immutable, cannot be hacked, and are secure. The use of smart contracts which are self-executing contracts that trigger the next step in a chain of pre-determined actions has also been utilized by various industries outside of finance. For example, purchasing a home, registering song rights, or sending a parcel across the world, can all be managed via the blockchain and smart contracts.
But it’s not just people power that’s driving forward cryptocurrency and bitcoin. Big-name institutions and multinational banks are getting on board as well. A few years ago, any were skeptical and even dismissive of the emerging technology, but now they are racing and competing to be the first to develop new products using both cryptocurrency and blockchain. Examples include JP Morgan, Goldman Sachs, and Deutsche Bank.
There is much to be said about the future of cryptocurrency. Some believe Bitcoin will go on to surpass the 200,000 dollars per coin mark, others believe that 2021 is the year widespread adoption will take place. The consensus is that both virtual currencies and blockchain are here to stay. In terms of currencies, it seems likely that stablecoins will reign supreme. These are cryptocurrencies that are pegged to a fiat currency such as the Euro or Dollar.
These currencies can also help those in developing countries who may not have access to a bank account, or where the local currency is subject to instability and high inflation.
But most of all, cryptocurrency will continue being part of a larger cultural shift away from cash and towards a digitized society. We have seen big increases in the use of electronic money and cryptocurrencies lately. This will continue as customers look for secure, private, low cost, and quick ways to purchase and transact with funds.
During the last decade, digital money has changed our ability to live our lives. It is changing the world of finance, education, logistics, government, and entertainment, but remember, this is just the beginning.
Although many opportunities for the blockchain require a digital currency, Bitcoin is only one application of this great innovation in computer science. The blockchain can hold any legal document, from deeds and marriage licenses to educational degrees and birth certificates. Call it the World Wide Ledger. It enables smart contracts, decentralized autonomous organizations, decentralized government services, and transactions among things. The Internet of Everything needs a Ledger of Everything: the blockchain is a truly open, distributed, global platform that fundamentally changes what we can do online, how we do it, and who can participate.
Some developers are building digital-currency tools for the world’s 2.5 billion “unbanked” people, in a bid to bring them into the global financial system. Others are packing additional information into the core programs to create applications well beyond currency transfers: software-managed “smart contracts” that need no lawyers, automated databases of digital assets and copyright claims, peer-to-peer property transfers and electronic voting systems that can’t be rigged.
A key idea here is that data in a blockchain ledger is made irrefutable by the computing consensus that goes into it. A blockchain is distributed across many independent computers rather than residing on a central server. So, unlike bank- or merchant-based data, such information is, in theory, invulnerable to attack or corruption. It is considered impossible for an outsider to hack thousands of computers simultaneously and there are no insiders to manipulate the central server’s software. This, in theory, makes blockchain data reliable and incontrovertible.
As innovation in digital currency accelerates, it will matter less whether Mom and Pop own bitcoin or even know what it is. Big multinationals and financial institutions could incorporate its decentralized technology into their payment and database systems while we obliviously keep using our dollars or euros.
If bitcoin thus becomes an ubiquitous if largely invisible part of the world economy, many believe that its price will rise. A small but growing number of hedge funds and family investment offices are betting on just that, taking stakes in bitcoin-investment vehicles.
But the growth of digital-currency technology has even more profound implications. It could reduce financial costs overall and leave more money in people’s pockets. At the same time, it could spell job losses—potentially rendering obsolete millions of positions in traditional intermediary services.
These aren’t idle concerns. Wall Street bankers and Federal Reserve staffers are discussing ways that this technology could make the financial system more efficient. Regulators in New York’s Department of Financial Services and elsewhere are designing rules to reduce the risks from digital currencies even as they encourage innovation. The governments of the U.K. and Mexico are exploring the use of blockchain technology to enhance financial networks and strengthen economic governance.
Despite the scandals and price swings in bitcoin’s brief history, the financial establishment is taking notice.
In the end, the rise of digital currency may be a matter of evolutionary destiny. The Internet has disrupted and decentralized much of the world economy, but the centralized world of finance remains stuck in the 15th century. Digital currency can help it adapt and survive.