The Future of Money: Will Digital Currencies Replace Cash?
We live in the times where a growing number of people are adapting to the shifts in modern finance caused by the advancement in technology. With technology being at the forefront of everything we do today, the use of digital systems has grown tremendously. As money continues to become more digital, cryptocurrency payments have become huge buzz words.
The question is: What then is cryptocurrency? A cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Bitcoin was the first cryptocurrency. It was first outlined in principle by Satoshi Nakamoto in a 2008 paper; Cryptocurrency is a form of payment that can be exchanged online for goods and services. Cryptocurrencies work using a technology called blockchain. Blockchain is a decentralized technology spread across many computers that manages and records transactions. Part of the appeal of this technology is its security. But will everyone benefit from such a change over to a cashless society which will most likely be the norm in the coming years? Are we ready to be so dependent on technology for it to take over the entire monetary system?
Differences between cryptocurrency and traditional money: Digital currency affords users complete anonymity. Every time you swipe your credit or debit card, your personal information is attached, and businesses, banks and governments can use this data to track your activities. Cryptocurrency transactions carry no personal information. This privacy also dramatically decreases the chances of identity theft.
Constant access to your accounts: Traditional accounts can be garnished or frozen, but since digital currency exists outside the regulations and laws that allow this to happen, it’s very rare to be unable to access your coins.
No fraud: Individual cryptocurrencies are digital and cannot be counterfeited or reversed arbitrarily by the sender, as with credit card charge-backs
Lower fees: Traditional banks charge fees to process transactions. With digital currency being exchanged over the internet, there are usually little or no transaction fees.
Cryptocurrencies appeal to their supporters for a variety of reasons. Supporters see cryptocurrencies such as Bitcoin as the currency of the future and are racing to buy them now, presumably before they become more valuable. Others like the fact that cryptocurrency removes central banks from managing the money supply. Yet other supporters like the technology behind cryptocurrencies, the blockchain, because it’s a decentralized processing and recording system and can be more secure than traditional payment systems.
Benefits vs. Risks: Digitizing the monetary system can bring several benefits and promote overall modernization of an economy, but it is important to consider the risks that come along and the possibility of them outweighing the benefits which can cause major consequences,
Since cryptocurrencies such as Bitcoin are decentralized, hence they can be used to anonymously fund purchases of illegal drugs and allow the act of money laundering and tax evasion to take place. Thus Bitcoin could be used to break the law with a lower risk of prosecution. One 2019 study found that 46% of all Bitcoin transactions involved illegal activity. It is also frequently used to solicit anonymous payments during blackmail and extortion schemes.
In March 2019, a bank was a victim of a cyberattack which allowed a sole hacker to access credit card details of almost 100 million people. Such attacks can jeopardize the entire payment system, and considering the large amounts of data that would be concentrated at one place, this makes the concept extremely vulnerable to attacks.
Then, the fully digitized system will also present a disadvantage to the lower class. Those residing in remote areas may not always have access to a stable broadband connection causing a barrier between them and their funds. Added to this are potential natural disasters and power outages. These could further worsen the problem as disruptions in the digital system will have people depending on cash to pay for their essential needs.
Cryptocurrencies are a natural result of the world’s digitalization, but their future depends on several factors including their stability, security, transparency and user confidence. In addition, hacking attacks represent their most significant threat, which might ultimately lead to their full abandonment by wary consumers. And as governments ponder over the topic, a central bank adviser in China recently stated, “Bitcoin [and other virtual currencies] can be an asset, but will never be a currency”.