Cryptocurrency – The Revolution of a Digital Economy can’t be explained without looking at the beginning of money.
Cryptocurrency – The Beginning of money
Technology never waits for man. The world we live in is constantly changing from various technological innovations.
Recently, one of such technological innovations is affecting the way we transact financially. In the midst of the world craving for a more independent, more secure and less likely prone to inflation form of money; Cryptocurrency seems to be the word the world is chanting but confused about.
This conversation will thus be looking at the meaning, emergence, benefits, dangers and necessity of Cryptocurrency.
Let’s break the conversation down by talking about the evolution and stages of Money. The first stage was by barter; that is if “A” needed what “B” had, then parties will have to exchange their goods.
Cryptocurrency – The Difficulty of modern money
However, it was not every time both parties will need what the other had. This difficulty led to the Cowries or Gold stage; where parties exchanged goods for Gold or Cowries. This stage brought the difficulty of carriage and safety.
The current stage of money is the type we know today where the government calls a paper legal tender through its central bank, gives their endorsement on such a paper and asks the people to use it as a means of exchange of goods. This stage has also brought innovation that involves bank transfers, Debit cards, Mobile banking, etc.
Here, as long as the bank has records that you have monies in your account; it will honour your request to pay another.
This stage comes with so many transparencies and inflation issues as the government can easily block people’s accounts (for example during the END SARS protest in Nigeria) and also print as much money as they want; most times not having recourse to certain limits and thereby causing inflation and reducing the worth of the monies already earned by individuals in the country.
This fight against such inflation brought the need for the emergence of cryptocurrency.
Cryptocurrency – The Arguement Against
Cryptocurrency is a digital payment system that doesn’t rely on banks to verify transactions. It’s a peer-to-peer system that can enable anyone anywhere to send and receive payments. Instead of using physical money that is carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries online; in a database that describes specific transactions. When you transfer cryptocurrencies, the transactions are recorded in a public ledger (called a blockchain). You store your cryptocurrency in a digital wallet.
Cryptocurrency got its name from ‘Cryptography’ which is the art of writing codes or solving mathematical equations with codes. This code-writing method uses encryption to verify transactions. This means advanced coding is used in storing and transmitting cryptocurrency data between wallets and to public ledgers. The aim of encryption is to provide security and safety.
Cryptocurrency came to existence when an unknown person (or group of persons) called Satoshi Nakamoto published his famous Bitcoin white paper in 2008 on a cryptography mailing list describing a digital currency that would allow secure, peer-to-peer transactions without the involvement of any middleman; government, financial system or a company.
Transactions are tracked on a blockchain. A blockchain is a ledger like those used by any financial institution. This ledger would be distributed across an entire network, with exact duplicates held by all participants and visible to all, secured by cryptographic means.
A blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without a need for a central clearing authority like the Central bank.
Since the creation of Bitcoin (BTC), over a thousand cryptocurrencies have emerged ranging from Ethereum (ETH), Litecoin (LTC), Cardano (ADA), Polkadot (DOT), Bitcoin Cash (BCH), Stellar (XLM), Dogecoin (DOGE), Binance Coin (BNB), etc.
Bitcoin originally is for the exchange of monies amongst people and to fight against inflation. The recent generation of Cryptocurrency now has smart contract capabilities incorporated into them.
A lot of other use cases are now emerging from various cryptocurrencies aside from the use of seeing it as a means of exchange and payment. Some include support for sports utilities, gaming support, file storage, Identity management features, etc.
Cryptocurrency seems to create a lot of fear due to its quick adaptation to the world. Most countries are either looking for ways to either outrightly ban it or control how to use it or totally accept it as legal tender.
We see this in the outright ban of Cryptocurrencies in China; the systematic control of them in the United States; and their adoption as a legal tender in El Salvador respectively.
The quick growth and adaptation of Cryptocurrency by the world put a lot of Countries in a state of uncertainty as to the acceptance of such a form of payment as it takes away the financial control and power from the state or government.
Nations are now looking at creating their own kind of Cryptocurrency called the CBDC (Central Bank Digital Currency), Nigeria inclusive; they recently launched their own CBDC or digital Naira or eNaira. These CBDCs are quite different from cryptocurrencies as they are not based majorly on the blockchain technology used by most Cryptocurrencies.
Nation-states are beginning to agree that this financial innovation has come to stay. So, most countries are looking at how to control it and adopt a legal framework for it.
One of the major arguments against cryptocurrency is that it encourages a lot of underworld activities, cyberattacks, illicit and illegal drug trafficking, terrorism, etc. Such negative activities are due to its transaction being “anonymous”. Another argument includes the volatile nature of Cryptocurrency; as people can easily lose their money due to its constant unruly uptrend or downtrend.
Cryptocurrency – The Arguement for
There is no doubt that Cryptocurrency has come to stay. The argument against its adaption as a means of exchange or payment is not, in the long run, convincing enough.
Cryptocurrency aids against inflation as its maximum supply is known (eg. 21 Million for Bitcoin). People use them as a means of storing their wealth or investing.
The argument against the volatile nature of Cryptocurrency is also no longer sustainable. Stablecoins are now pegged to the dollars or something more valuable like gold. Some of the stablecoins include Tether (USDT), Binance USD (BUSD), etc. This means people have the option of using stablecoins also.
Also, the argument that the activities of users of Cryptocurrency are anonymous is not really true. Users have public and private keys that validate their transactions. Wallets are generally pseudonymous rather than anonymous. That Cryptocurrency users are anonymous is an illusion.
Users have something like a nickname (Keys) on the blockchain; that can help reveal the identity of an individual. Countries now mandate Cryptocurrency Exchanges and blockchains to do what is known as KYC (Know your Customers).
This has made it easier to track illegal activities on the blockchain. Various stories are popular now of countries recovering stolen Cryptocurrency or getting Cryptocurrency scammers. Although, this is still a developing part of the adaption of the entire cryptocurrency in the world.
Cryptocurrency has evolved so much. It is this writer’s opinion that Cryptocurrency will be part of mainstream finance due to its enormous possibilities.
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