Does cryptocurrency really have a future?

Introduction

 The Sveriges Riksbank, 1668 Sweden. This was the first ever recognised central bank established. Ever since then the economies of the world have only become more and more centralised. In the modern world, virtually every nation’s economy is now run by a central bank. Besides some fluctuations, such as the 2008 financial crisis, our familiar centralised economies keep the economy, on average, stable. The value of money is looked after carefully by these central banks who set a benchmark for interest rates, and make sure that this value isn’t mirroring social issues and short-term political events. Collectively this system leads to a well-organised and carefully run national economy. However a new form of decentralised currency has recently begun to seize popularity, known as cryptocurrency. Although this has not been considered by great numbers of people as an option away from centralised banking, but more so as a high-risk investment, it has captured the minds of some. Away from the centralised and controlled national system of central banking, cryptocurrencies are now gaining traction as a more independent form of currency. So what are cryptocurrencies?

What are cryptocurrencies?

In 2009, Bitcoin was created as the first decentralised cryptocurrency. This was created by someone, or many people, who have remained anonymous under the name of Satoshi Nakamoto. This gained significant traction as an investment and was labelled as the year’s best investment by Forbes in 2013. In 2009, one bitcoin was valued at $0.00099USD and has risen to its current value of $64,418USD. This, similar to gold, is a finite resource and it has been confirmed by Satoshi Nakamoto that there are no more than 21 million bitcoins existing. Cryptocurrencies, such as bitcoin, operate on a “cheque book” known as the blockchain. The blockchain acts as a cheque book in the sense that it records chronological transaction methods which cannot be altered, making it highly secure. Because the blockchain is publicly visible and not controlled by one individual or group, it makes cryptocurrencies a decentralised currency. This is where cryptocurrencies have gained their popularity as a currency. Unlike regular money, which is looked over by a central bank, cryptocurrencies have become more attractive and trusted to some who see this independence and decentralisation as ideal. As well as this the value of cryptocurrency is set by the people, the users, rather than the central banks. Although this makes it highly volatile, it cannot go through inflation and similar economic events, but rather fluctuates independently of a central system. Even with this appeal as a new form of currency, many argue that this is far from a good idea, and that it should stay as an investment, like gold. As far as investments go, cryptocurrencies can be a fruitful option with potentially high returns, mostly due to their high risk. 

So where do they best fit?

Cryptocurrencies certainly have potential and appeal as a currency, and they may end up lying somewhere in between. In 2021, El Salvador officially labelled Bitcoin as legal tender, and this trend may continue in other nations, giving it some recognised value as a currency. However I believe that, unless we have a major economic reform, cryptocurrencies will remain a relatively unused currency, with the weight of its use being as an investment. Generally, cryptocurrencies’ high volatility will likely be a major drawback in an attempt to become a currency. Not only does this make it difficult to use for everyday purchases, such as a coffee, but this volatility typically will not be perceived as useful by the majority of the population. Most of all the decentralised, independent and highly volatile nature of crypto makes them generally incompatible with our current economic and political system. This system we are familiar with is used all over the world and does not differ between countries. For currencies like crypto to gain dominance, it isn’t just the qualities of an economy or nation that must change (e.g. communism or capitalism) but it is the backbone of the economy itself that must change. The centralised nature of our modern economies are fundamental to our entire economic system and understanding. By losing this, there would be many gaps in our knowledge for how we would shape our world. Beyond this, political structures would also have to change drastically. This decentralised economy may, if constructed well, have great potential, and one may ask if a major economic reform is on our horizon. However, this seems unlikely and although the shape of our economic building may be changing here and there, the pillars seem strong. Nonetheless, a decentralised economy certainly gives food for thought, and deserves genuine consideration.

Is Decentralisation the Future?

Bitcoin, and cryptocurrencies, exist on a decentralised network known as a blockchain, which is open and not controlled by a single entity. The adoption of a technology such as this is becoming increasingly important throughout the world and in all domains, not just cryptocurrency. With the increased risk of strongly authoritarian and powerful centralised systems in place due to the heightened means of control offered by advancing technology, blockchain technologies are giving us the opportunity to regain freedom and autonomy in a plethora of domains. To learn more about the blockchain and one of it's key applications beside from cryptocurrency, I have written an article on the Blockchain and Decentralised Autonomous Organisations (DAOs).