Is cryptocurrency the future of money?


Fact Box

  • Forbes defines cryptocurrency as “decentralized digital money, based on blockchain technology,” with the most popular versions being Bitcoin and Ethereum. 
  • According to Investopedia, Bitcoin has a “limited and finite” supply of 21 million bitcoins that can be “mined,” with the projected final mining of the last bitcoin slated to occur around 2140.
  • Although cryptocurrency is largely believed to be used for “illicit activity,” only .5% of all Bitcoin transactions in 2019 occurred on the “Dark Web.”  
  • According to a recent Harris Poll, more than 10% of American adults have never heard of cryptocurrency, while about 61% of those who had heard of it had “little or no understanding of how they work.”

Amna (Yes)

Cryptocurrency is an obvious successor to transaction processes currently used. Credit cards have been steadily replacing cash transactions, and cryptocurrency is on its way to becoming the new virtual wallet for a global consumer. It is a transparent system undaunted by the power of institutions over an individual transaction. As the government or private banks do not run it, the decentralized peer-to-peer transaction system encourages a consumer's autonomy and control over every trade. 

Crypto-acceptance is also steadily increasing. According to Deutsche Bank, digital currencies will rise to over 200 million users by 2030 due to the current system's fragility. Deutsche Bank predicts that 'cryptocurrency users will grow 4x in the next ten years, reaching 200 million.' This growth rate resembles the internet's growth rate in its first 20 years, which is a promising and optimistic outlook. Many central banks and countries like China are also rushing to introduce their digital currency, further facilitating cryptocurrency's social assimilation.

The cryptocurrency system provides information, reduces costs, and adds value to transactions. Unlike the 'invisible and sterile' people outside of the property system in modern economies like jobless or homeless people or undocumented immigrants who can't access proper financial tools, anyone can utilize these new networks with a blockchain-based identity. Therefore, it is more global and promotes an equitable free global market. Austrian economist Trace Mayer states that the traditional fiat money system cannot provide the safety and liquidity investors need. As cryptocurrency has no counterparty risk, is equity-based, is more portable than gold, and has never become worthless during its existence, it is a perfect future instrument for finance and trade.

Bill (No)

As both a concept and a technology, cryptocurrency is not clearly understood by most people, which means that it is unlikely to displace more familiar payment methods. Of particular note is that much of the underlying technology for cryptocurrencies, like Bitcoin, resides in China. Additionally, cryptocurrencies lack the elements that provide confidence and stability to the average consumer, as they have no government backing, no underlying assets, and enjoy no military support of insurance. In contrast, physical currency, such as the US dollar, is backed by the Federal Deposit Insurance Corporation, a permanent government agency.

The potential for hacking and fraud exists with any electronic payment method and could prove to be an additional barrier to the wide adoption of cryptocurrency. Credit cards, which are commonplace and perceived to be safe, accounted for fewer than one in four transactions in 2019--meaning the adoption of cryptocurrency is unlikely to eclipse that percentage anytime soon. As of Q1 2020, cryptocurrencies accounted for approximately 1% of the foreign exchange markets' daily trade volume. 

Another obstacle to the adoption of cryptocurrency is its associated volatility--as it has been noted to experience a 15% drop in one business day. By comparison, the Black Monday drop in the stock market on October, 29th 1929, that kicked off the Great Depression, was less than 13%. As Finance Professor David Yermack from NYU's Stern School of Business puts it, cryptocurrency is a 'purely speculative asset.' Due to its volatile nature, it follows that cryptocurrencies would be unsuitable for investors nearing retirement. With approximately $32 trillion in retirement assets in the US alone, it's hard to envision cryptocurrency becoming the future of money any time soon.

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