Cash, Plastic money, digital wallets, what next?
We highlighted Cryptocurrency as The Top 10 Technologies of this decade. What is cryptocurrency and does it really have the potential to become mainstream?
A brief history of how it began:
Cryptocurrencies are a controversial and relatively new medium of exchange. Historically, civilizations have been using various things as mediums of exchange to make trade easier and quicker for all parties involved. We have come a long way from using cattle directly in barter to shekels to coins to banknotes to digital money that we are used to today. The early concept of cryptocurrency originated in 1983 when cryptographer David Chaum conceived untraceable digital money and named it “ecash”. The cryptocurrency industry is based on Blockchain Technology. It led to people improving upon the work & idea by Chaum subsequently and in 2009 the first decentralized cryptocurrency, bitcoin, was created by Satoshi Nakamoto, a pseudonymous developer, which now has the largest market volume in of all crypto-currencies.
Why should cryptocurrencies exist?
To answer this question, let's first discuss what it offers. There are many advantages that crypto technology provides:
1. Peer-to-peer networks
The first advantage is the operation of cryptocurrency in peer-to-peer networks which can offer a more private, secure, and efficient platform for any network for daily usage. People can transfer money without any third-party verification.
2. Open source and Transparent
The technology used in developing these cryptocurrencies is Blockchain, which is open source and hence, transparent. Blockchains rely on crowdsourcing principles which makes them more open, and in turn, avoids the concentration of power in any one authority. In every transaction we do today, we rely on and trust a third-party intermediary to complete the transaction correctly: for processing a payment transfer we rely on banks, title agents to inspect and transfer the title for real estate, or auditors to be sure accounting records are complete. Blockchain technology has the potential to replace third-party intermediaries in nearly every business. That is why blockchain technology has garnered so much attention.
3. Decentralized organization
Decentralization to a certain degree “democratize” currencies and decision-making. Open source facilitates that decentralization means no one central “source of truth” can become corrupted or make decisions that impact everyone.
4. Transaction speeds and rates
This is another advantageous factor of blockchain-based cryptocurrencies. Traditionally when we wire to a third party, generally one more bank and/or a payment gateway is used to change money from one set of hands to another. This greatly limits the transaction speed, and cost since these intermediaries may not be available 24*7 and they charge fees to facilitate the transfer. This can be reduced with the use of cryptocurrencies which have great functionality under huge workloads.
Let us look at some examples of the adoption of cryptocurrencies:
Steemit is a place where users get rewarded with the cryptocurrency STEEM for publishing and curating their content. In technical words, it is a blogging and social media website but based on blockchain technology.
In the corporate world, companies are slowly moving towards accepting transactions in cryptocurrencies, with Bitcoin the most popular and Etherum as the runner-up. Tesla announced in an SEC filing that it has bought $1.5 billion worth of bitcoin. The company claims that it would start accepting bitcoin as a payment method very soon for its products.
Update: Tesla will no longer accept Bitcoins as per Musk's tweet. The reason being climatic concerns. But, they are planning to accept Dogecoin soon.
With the rise of esports, the gaming industry will possibly lead to the usage of cryptocurrency adoption. Most gaming companies have a non-standard digital currency or virtual currency defined since a long time ago. Cryptocurrency will confirm a simplified gaming experience. The increasing number of players endorsing them will also escalate the price of their tokens.
Dark web, casinos use digital currency. After the name of bitcoin, the virtual casino website is named as Online Bitcoin Casino.
So far, so good. Let us talk about the not-so-good!
Still not legal in many countries
Governments around the world have been behaving differently to this new technology. Some countries like China, Russia, Morocco, Algeria, Egypt have banned bitcoins to be used in the country. And there are some which have banned their banks from facilitating bitcoin transactions. At the time of writing, the Government of India has listed a bill to ban bitcoin-like cryptocurrencies in India and create its own cryptocurrency.
The majority of countries that have made Bitcoin legal are in the Americas and Europe. European countries including the UK, Germany have favorable attitudes towards Bitcoin. Other Countries where bitcoin is Legal to include Australia, Japan, Canada, and South Korea. Some countries in Asia have also partially accepted it. The tax and exchange rules are different for countries.
Taxation on cryptocurrencies gains are classified under capital gains by several governments and it makes the cryptocurrencies more of an artifact than a currency in some aspects. Also, the taxes limit the untraceability of blockchains and demerit the commercial skills of the owners.
Cryptocurrency earned by mining, payment for goods or services, or receiving as a promotion, counts as regular taxable income. You owe tax on the entire value of the crypto on the day received, at your regular income tax rate.
Often the news of hacking and breaches make headlines, users are demanding more protection over their assets and data. The fact that hackers advance with the technologies cannot be ignored. The biggest example is the coincheck hack in 2018, when one of Japan's largest digital currency exchange claimed to lose some $534m (£380m) worth of virtual assets in a hacking attack on its network.
Cryptocurrency is an incredibly speculative and volatile concept. Even the stock trading of established companies is hesitant in investing in cryptocurrencies. Though there are many hurdles, still cryptocurrency is rising gradually. They are striving to outlive the current financial system and replace them with a completely cryptographic and digital network. Speculations are that physical currency could be absolutely obsolete by 2030!
Read more on The Top 10 Technologies of this decade here
Shriya Madan, an ardent learner, a digital enthusiast, aspires to make an impact in the real world with the power of technology
Pranjali Apurva, driven by curiosity, converging design principles with digital transformation