3 important reasons why cryptocurrency is here to stay
If you need to search for something, there are many ways to do so, such as consulting an expert’s opinion, reading a book, or simply going onto a search engine and type your question. There is a plethora of information that you can get on the web because the internet is built in such a way that it is a decentralized platform: there is no central authority.
Although it is safe to say that the Internet does have many benefits as compared to its limitation, the internet didn’t start off gathering much favor. A winner of the Nobel Prize in Economics, Krugman, once predicted that “by 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s”. Other early skeptics were concerned about how a platform with no central authority can thrive in an increasingly centralized world. We have lived in the Internet Era for about 30 years now, and I am sure most of us can all agree that the internet is here to stay. Now, with a new form of currency 10 years into its infancy stage, is there a major consensus that cryptocurrency is here to stay?
In this article, I am going to explain the importance of cryptocurrency as a decentralized asset, decentralized financial institution and elaborate why cryptocurrency is the future of currency.
A Decentralised Asset
Cryptocurrency started off as a digital asset design to work as a medium of exchange. Because of its decentralized nature (there is no central authority), transactions are extremely fast and smooth. Anyone from anywhere in the world is able to receive money without going through a platform like Paypal or through institutions like banks. All an individual needs is a crypto wallet.
Think of it this way. Imagine you want to pass some money to your friend. You take your wallet, take some money out of it, and pass it to him. This process is decentralized because there is no authority involved.
Now, you want to pass a huge sum of money (say, 1 million dollars) to him. You can either take a large briefcase and stuff 1 million dollars in it (which is extremely unsafe because anything can happen to that briefcase: you lose it, someone steals it, you look extremely suspicious etc), or you can transfer the money through the use of a bank (assume that your friend uses the same bank as you). With the bank helping you transfer your money, you will definitely feel safer, but this ‘safety’ comes with a price. You will have to pay the bank a small sum of money to use its services and your friend has to wait a few hours to a day for the bank to process before he receives the money.
So far so good. Now, you want to pass a huge sum of money to another friend, but he is in another country (and therefore uses a different currency and a different bank). You have to first convert your money through a platform (money exchange or the bank itself) and pay the fees, then pay the bank to transfer the sum of money to his bank (which you then have to pay another set of fees for his bank to acknowledge the transfer). Your friend then has to wait a day to a week to receive the money.
Stay with me here. Now, you want to pass a huge sum of money to a random person who doesn’t have a bank account. What do you do now? The banks can’t help you deliver the money. You can choose to deliver the cash yourself but it takes too much time and effort.
All these issues are not a problem if you were to use cryptocurrency as a medium of exchange. Anytime and anywhere, anyone can receive money if they have a crypto wallet. Although decentralized, cryptocurrency transactions are still extremely secure. This reason alone makes cryptocurrency so popular. The image below is a screenshot that highlights the power of cryptocurrency.
As a decentralized asset, cryptocurrency levels the playing field for everybody. There is no incentive for richer people, nor is there any liability for poorer people. This decentralization of assets makes transactions fair to everyone, although it most definitely incurs the wrath of those in control (because they will not be in control anymore).
A Decentralised Finance
But wait, there’s more. Cryptocurrency has evolved to more than just a digital asset. With the introduction of Defi (Decentralised Finance), crypto is imitating what the bank does, but with much less liability.
Think of some ways that allow banks to generate revenue. That’s right, one way that banks generate revenue is to charge an exorbitant amount of interest to someone who takes a loan from them. Another way to generate revenue is to accumulate cash assets from the user’s bank account. After accumulating a huge sum of cash from different accounts, the bank will use the cash to invest in other sectors such as real estate and technology. The bank then pays interest to the users who ‘lent’ them the money as a form of gratitude. Usually, the interest rates of banks are pretty abysmal but that’s because they need to pay the thousands of employees who work for them. In addition, banks incur huge costs when it comes to rent and electricity.
Now, imagine that these banks have no employees and no real estate, but still function in exactly the same way. Think of how the amount of money that can be saved because of the extremely low costs. This is what Defi aims to do. With a partially central authority (A company that manages funds such as Celsius Network or Nexo), they can use the money that you deposit to generate revenue. These companies can also loan money to other people and charge them interest. Since they will be incurring significantly lesser costs compared to banks, they are able to give huge interest rates back to the people who used their services.
The Defi concept is expanding to areas of insurance, financial planning, and even robotic investment. The image below shows what different applications and services there are in the crypto world.
Cryptocurrency can do what banks does while incurring a much lesser cost. After all, who wouldn’t want a higher interest rate?
The Future of Currency
“The dollar is stable but cryptocurrency is not”. That saying is a common argument and deters skeptics from investing in cryptocurrency. For example, if you invest $1,000 in cryptocurrency and the price of the cryptocurrency dips by half, you instantly lose $500. For that reason, the dollar is much more stable. However, one would realize that even if the dollar does not lose money, the value of the dollar depreciates over time.
The crypto world is evolving at an exponential rate. There are already stable coins such as Dai and USDT that pegs their value to the dollar. Those who are concern about the extreme volatility of cryptocurrency can choose to invest in these stable coins and tokens. The image below showcases the different types of cryptocurrency currently in the market. (The image is not exhaustive, there are much more cryptocurrencies out there in the market)
With crypto being a decentralized asset, building a decentralized finance infrastructure, and being the future of currency, I strongly believe that cryptocurrency is here to stay although anyone is free to speculate. Through this article, I hope that I have given you a glimpse into the future of cryptocurrency.
