Will Cryptocurrency Become the Only Global Currency in the Future?
Many consider fiat or paper money as a thing of the past, especially since digital currencies are quickly taking over the global financial market. It’s evident that virtual money is revolutionizing the way people make financial transactions. Moreover, it has the potential to affect global currencies, including the US dollar. As if it were not already facing challenges from the Euro and Chinese Yuan Renminbi, the rise of digital currency is another hurdle that the US dollar has to overcome.
The US dollar has maintained its status as the global currency for decades despite being challenged by the Japanese Yen in the 1980s. Even so, both the Chinese Yuan Renminbi and Euro are putting up a good fight against the US dollar in the international finance market. What’s more, the US dollar’s share of currency reserves is evidently falling. Meanwhile, the Euro and Chinese Yuan have valuation issues that prevent them from taking over the US dollar. So, while there is no credible alternative, the US dollar will remain the world’s reserve currency.
Can Cryptocurrencies Be Regulated?
As far as regulation is concerned, various nations do not have consistent policies in dealing with cryptocurrencies, and guidelines on accounting, audit, taxes, and legal standards vary by country. Consequently, ongoing and heated debates about regulations have been common in the cryptocurrency industry. Cryptocurrencies have unique features, including their decentralized, peer-to-peer nature. As such, it has been challenging for governments and policymakers to create effective rules for regulating virtual currencies.
Central banks, regulating agencies, and governments are adamant that cryptocurrencies pose risk to financial stability. Financial institutions around the globe have been discouraging consumers from using or investing in cryptocurrencies. As we’ve mentioned, there are no consistent regulations that can protect investors. Moreover, a cryptocurrency’s value is highly unstable and volatile. Consumers also have to worry about fraud and hacking.
Will Cryptocurrency Drive the Global Economy?
Millions of people see business opportunities in cryptocurrencies. Consequently, the digital currency ecosystem has grown tremendously over the years. Various virtual currency services are available to consumers. These include digital payment processing, mining, and virtual wallet services, among many others. It’s also not uncommon to find news about businesses offering salaries in the form of Bitcoin to their employees. So, it’s not surprising if one day, you’ll see Bitcoin as the payment currency in your Traqq invoice.
A survey conducted by Neustar International Security Council revealed that 80% of IT businesses are interested in using cryptocurrencies. Thousands of merchants around the globe are already accepting digital currencies. Big industry names such as Microsoft, PayPal, Subway, and Walmart have joined the bandwagon. Indeed, it is evident that cryptocurrency is here to stay. What’s more, it can open up new business opportunities.
Currencies serve three primary functions: a medium of exchange, a unit of account, and a store of value. It is true that cryptocurrency can serve as a medium of exchange. However, it falls short as a store of value and a unit of account. Once you compare its volatility with that of fiat currencies, you will learn that cryptocurrency is too unstable to store value for a long period. Virtual currencies have seen extreme ups and downs ever since their inception. What’s more, research has found that cybercriminals have been exploiting the very nature of digital currencies. Actually, the idea of hackers influencing Bitcoin’s price movement is not too far-fetched.
It’s also difficult to look at cryptocurrencies as a unit of account. A currency must be capable of measuring a commodity’s actual value. Let’s look at a piece of avocado as an example. We can say that it is worth $2. This value will remain constant when you look at it from the perspective of fiat money. Now, if its price is advertised in cryptocurrency, the value of the commodity may fluctuate according to the movement of the digital currency market. So, cryptocurrency cannot reflect the avocado’s real value.
We can see a bright future for cryptocurrency. However, it has little chance of becoming the only global currency in the foreseeable future, especially because of the regulatory challenges it faces. There are too many risks that come with it, including extreme price volatility, low liquidity, and artificially inflated prices. Despite that, cryptocurrency will continue to offer financial opportunities to businesses and individuals alike