Cryptocurrencies are digital assets used as both payments and speculative investments. Many of them are fungible, meaning you can swap one for another and receive exactly the same asset. Some are non-fungible, like a one-of-a-kind trade card, or utility tokens that serve specific functions on their respective blockchains.
They're designed to revolutionize financial infrastructure by eliminating centralized intermediaries. But this is not without its risks.
Cryptocurrency powering the future of blockchain
As a new asset class, cryptocurrencies offer the possibility of enormous returns and can operate as hedges against established financial products. The underlying blockchain technology offers transparency, cheaper transaction fees and faster, more secure global transactions. In addition, its openness and immutability can also benefit supply chain management and identity verification.
Cryptocurrencies are exchanged on decentralized computer networks between people with virtual wallets, without the need for a central authority such as a bank. The best known cryptocurrency is Bitcoin, which was created in 2009 by the pseudonymous Satoshi Nakamoto and has a market capitalization of over $1 trillion.
Some governments have moved to regulate or restrict the growth of cryptocurrencies, including bans on Bitcoin mining in China, which accounts for much of the world’s activity. However, many are opening up to the potential of cryptocurrencies and blockchain technology. Some are even considering introducing their own central bank digital currencies, or CBDCs. The future looks bright for cryptocurrencies.
Cryptocurrency and people
Cryptocurrencies are helping people connect to one another in a way that has never been possible before. The currencies allow people to make payments directly to one another, bypassing the need for third parties like banks or governments.
These transactions are recorded on a public, tamper-proof ledger known as the blockchain. Bitcoin is the most well-known cryptocurrency, but there are dozens of others, including Ethereum, Libra, Dogecoin and more.
Unlike conventional national currencies, which get their value from being legislated as legal tender, cryptocurrencies are worth what the market is willing to pay for them. This makes them more flexible and resilient than traditional money.
This new kind of currency can be used anywhere in the world, even war-torn or corrupt countries where the government does not have strong identification infrastructure. Cryptocurrency can also be stored securely in digital wallets, which reduces the risk of theft or loss of wealth. It can even be sent across borders much more quickly than a wire transfer.
Cryptocurrency and the economy
Since their inception in 2009, cryptocurrencies have exploded in popularity. Despite the volatility in this market, many businesses have accepted crypto as payment, including Overstock, Pavilion Hotels and AXA Insurance. Others have launched stablecoins, such as Tether and USDC, to help stabilize prices.
Most people buy cryptocurrency for speculative reasons, hoping it will increase in value. Others buy it as an investment in the underlying blockchain technology.
Unlike national currencies, which get their value from being legislated as legal tender, cryptocurrencies are worth what people are willing to pay for them in the market. This makes them highly speculative.
They also lack the attributes of money, such as being a unit of account and a store of value. Some governments are regulating the burgeoning DeFi sector, but it is still a Wild West for investors.
Cryptocurrency and the future
As cryptocurrencies rise to challenge traditional currency for our wallet share, they’re reshaping how we think about money and investing. But cryptocurrency is a complex new sector. And regulators are still grappling with how to best handle it.
Cryptocurrencies are not managed by any central bank or government agency, and they’re backed by an encrypted computer network called blockchain, which creates a shared ledger of transactions. This allows people, known as network participants, to approve and verify crypto coins without a single trusted intermediary.
Advocates say this makes them more secure than existing currencies, and they can be transferred quickly, even across borders, with little or no fee. They also claim that the digital assets’ scarcity and blockchain technology make them more stable and reliable than conventional currencies, which are prone to inflation. But others say that wild fluctuations in crypto prices undermine their value as a store of value or as a means of payment, and they call for increased regulation to ensure security.
