It all began in 2009 with the introduction of a white paper for Bitcoin, a peer-to-peer digital cash system. Since its inception, we have seen the addition of over 10,000 cryptocurrencies, with a market cap pushing through the trillion-dollar mark. At first it was only a niche group of investors who profited from the digital currency – mostly due to a total lack of understanding and appreciation for what it could amount to.
In recent years, we have seen a sharp rise in the number of investors and traders jumping aboard the crypto train. These include high-profile companies such as Mastercard, Starbucks, PayPal and Tesla, and well-known public figures and celebrities like Bill Clinton, Elon Musk, Madonna and Jack Dorsey. The economic impact of cryptocurrency has been both overt and subtle.
The fundamentals of cryptocurrency
Cryptocurrency is a decentralized digital currency, not beholden to any government or central bank. Bitcoin is the most popular and sits at the top of the cryptocurrency list for highest value and price. Mining is the secure process of obtaining digital currency where ‘miners’ solve complex mathematical algorithms in order to validate transactions and earn rewards.
Blockchain technology is, in effect, the digital ledger by which transactions are recorded across a complex computer network. Though the transactions may be recorded, the data of parties involved is not. Investors and traders must keep a watchful eye on cryptocurrency prices as the market can be highly volatile.
Cutting out the middle man
On an economic front, cryptocurrency has the potential to shake up economies by destroying central banks. Bitcoin, for example, is unique and secured through cryptography; it is decentralized but backed by complex algorithms; it doesn’t need an intermediary to produce or distribute its currency.
In response, we have seen a rise in global banks adopting elements of cryptocurrency to develop Central Bank Digital Currency (CBDC). Many major banks are embracing the change, hoping to match the modernized financial system and speed up payments.
Crypto and the pandemic
In 2020, the Covid-19 pandemic struck, resulting in world crisis and causing a devastating effect on the global economy. Growing fears created an extreme arena for cryptocurrency acceptance and with the limited supply of crypto available, cryptocurrency prices and values surged.
Post pandemic, we have seen an increase in the adoption of blockchain technology across many industries. In an economic state of hyperinflation, people are looking to cushion the impact of wealth and purchasing power.
Global financial inclusion
Cryptocurrencies help to buy resources and financial services, thus accelerating economic and social development of the global economy. As a decentralized currency, neither individuals nor corporations are able to exploit it, reducing the risk of fraud and corruption.
Staggeringly, over 1.7 billion people in the world do not have a bank account, however, many of these people do own a smartphone! Cryptocurrency transactions can be conducted through mobile apps, thus making it a financially viable option.
Blockchain technology helps to reduce the real-time speed and efficiency of transactions, providing clear transparency.
Goods and services
An alliance is building between cryptocurrency and several economic sectors, even though the current impact is small.
Take, for instance, the education sector. Some universities in Switzerland, Germany, Cyprus and the USA have started to accept cryptocurrency as a form of payment for education fees. There has also been an increase in the number of online educational institutes receiving payments via Bitcoin.
The housing market and real estate industry have seen a rise in the number of properties being bought and sold using cryptocurrency alone. In travel, customers are able to pay for flights, cruises, hotels and car rentals with the decentralized currency.
In a well-publicized move, Elon Musk, the owner of car manufacturer Tesla, announced that the company would be accepting payments via cryptocurrency, thus boosting its kudos and adding to economic growth.
In the entertainment arena, online casinos have also taken a leap of faith into the crypto world, adding a number of options from the cryptocurrency list to their payment options.
A greener future?
As blockchain technology is a digital network, there have been serious concerns regarding the significant energy consumption and increased carbon emissions. Bitcoin mining does consume increased amounts of computer power and there is the necessity to validate and store data on the digital ledger.
However, on the flip side, the consumption of energy currently used for financial networks is actually much greater than the Bitcoin network. We have cryptos that use renewable energy sources and there is also the potential to transition from PoW to PoS, thus lowering energy consumption tenfold.
A growing class of green assets, Carbon Utility Tokens (CUT), is emerging. Sales of these tokens contribute to carbon neutrality. Investments are made in carbon capture and carbon offsetting programs. In this manner, blockchain technology has the potential to provide a greener future.