Impact of Cryptocurrency on the Future Term Paper
- Length: 5 pages
- Sources: 5
- Subject: Finance
- Type: Term Paper
- Paper: #24582980
- Related Topics: Bitcoin
Excerpt from Term Paper :
Forms of digital money have been on the rise in the past few years. Today, a broad assortment of transactions can be undertaken without using cash and conventional types of money. Cryptocurrency is the latest entrant. Since the emergence of Bitcoin in 2009, several other cryptocurrencies have been introduced, such as Ether, Litecoin, and Monero. Cryptocurrencies are digital assets intended to function as mediums of exchange. They are based on cryptography and blockchain technology. Though cryptocurrency could be the future of money, the inherent risks cannot be understated. Understanding the world of cryptocurrency is especially important given its connection to capital and money markets. For capital and money markets to function properly, mediums of exchange must be stable and reliable. This paper discusses the future of cryptocurrency. The paper specifically focuses on the implications of cryptocurrency on capital and money markets as well as the risks and concerns presented by the rise of cryptocurrencies. Special attention is also paid to the bitcoin scandal and its implications.
Though cryptocurrencies have gained popularity in the last five years or so, their history dates back to the 1980s, when cryptographer David Chaum developed a complex algorithm to secure electronic fund transfers (Stark). Chaum’s algorithm laid the foundation for digital currency transfers, whether it is electronic cash transfers or virtual currencies such as Bitcoin. Nonetheless, Chaum’s efforts to popularise cryptocurrency were impeded by government restrictions, causing his cryptocurrency start-up to shut down in the 1990s. In 2009, however, what would become the first modern cryptocurrency – Bitcoin – was launched by an individual or group individuals pseudonymised as Satoshi Nakamoto. While Chaum’s idea did not involve decentralisation, Bitcoin’s idea was inherently characterised by the absence of centralised control, in addition to anonymity and blockchain technology. Since the emergence of bitcoin, some optimists have described cryptocurrencies as technologies that could revamp industries across the board (Hackett; Zhuravlyova). In future, they could be used everywhere – from banks and retail stores to pension plans and capital markets.
Cryptocurrencies are increasingly redefining capital and money markets. According to Stark, cryptocurrencies could be the new norm in the near future as far as medium of exchange is concerned. Cryptocurrencies have a number of unique characteristics that make them popular. First, dissimilar to conventional
currencies, cryptocurrencies are decentralised. This means that they are not regulated by a designated authority such as a central bank: they are purely driven by market forces. Additionally, cryptocurrencies are difficult to counterfeit as they are based on cryptographic techniques. This is an especially important attribute given the rise of counterfeit currency. The anonymity of cryptocurrencies makes them even more attractive. Anonymity means that each transaction is strongly encrypted, making user identification extremely difficult. These characteristics make cryptocurrencies safer than conventional currencies. Indeed, though most financial advisors are likely to discourage clients from investing in cryptocurrencies, the currencies could offer an attractive return on investment. For example, the value of one bitcoin today exceeds $4,000, an overwhelmingly exponential increase from $0.0001 in 2009.
For financial institutions, cryptocurrency could result in significant savings as a result of reduced paper work. The technology could eliminate the laborious, paper-intensive processes banks rely on to complete transactions (Zhuravlyova). It could make bookkeeping faster and less costly, making transactions less repetitive, safer, more streamlined, and more reliable. As a matter of fact, large banks such as HSBC are exploring the potential of cryptocurrencies. If financial institutions fully embrace the technology, capital and money markets could take a whole new direction to the benefit of both banks and their clients.
Cryptocurrencies could also revolutionise capital and money markets by addressing challenges associated with the increasingly digital economy. Across the globe, there are more than two billion people without access to the formal financial system (Stark). Cryptocurrencies can overcome this challenge by facilitating person-to-person exchanges. Cryptocurrencies could also be used as platforms for crowdfunding. With cryptocurrencies, virtually everyone can be an investor online (Hackett). This is a particularly important advantage for entrepreneurs hunting for funding. In fact, some start-ups have obtained funding through this new channel. Essentially, the growth of cryptocurrencies is driven by not only economics, but also social impact. As a result, cryptocurrencies could be the future of money.
In countries like Switzerland, the use of bitcoin is already a norm (Zhuravlyova). There are even bitcoin ATMs installed throughout the country, enabling users to exchange conventional currency for bitcoins. This has made Swiss towns like Zug to be termed as…
Sources Used in Documents:
Hackett, Robert. “7 cryptocurrency predictions from the experts.” Fortune, July 25, 2017, http://fortune.com/2017/07/25/bitcoin-ethereum-cryptocurrency-predictions/. Accessed 19 August 2017.
Moore, Heidi. “The Mt Gox bitcoin scandal is the best thing to happen to bitcoin in years.´The Guardian, February 26, 2014, https://www.theguardian.com/money/us- money-blog/2014/feb/25/bitcoin-mt-gox-scandal-reputation-crime. Accessed 19 August 2017.
Stark, Harold. “From here to where? Bitcoin and the future of cryptocurrency.” Forbes, April 21, 2017, https://www.forbes.com/sites/haroldstark/2017/04/21/from-here-to-where- bitcoin-and-the-future-of-cryptocurrency/#671ec7644367. Accessed 19 August 2017.
Zhuravlyova, Sonia. The future of money: Bitcoin and other cryptocurrency technologies are a way of life in this small Swiss town. Newsweek, July 7, 2017, http://www.newsweek.com/2017/07/21/zug-switzerland-crypto-valley-bitcoin-digital- currency-634524.html. Accessed 19 August 2017.
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