Digital currency is the future of money. It is a decentralized and secure form of currency that no government or financial institution controls. Cryptocurrencies are based on cryptography, which makes it very difficult to counterfeit or hack.
Since the publication of Satoshi Nakamoto’s white paper in 2008. Bitcoin entered the world in 2009 trading for pennies within a community of coders who made changes and refinements. In 2011 a bitcoin was worth $1.00 and $30 four months later. Following 2012, demand increased slowly and then sharply. By mid-2015, bitcoin was worth $290.
Many businesses worldwide accept it as payment. This includes major online retailers. It’s also accepted by small businesses. Food trucks also embrace it as a payment method. There is now a whole industry for assisting people with buying, selling, storing, and transferring the price of Bitcoin. The media extensively covers all the latest news about this cryptocurrency.
Despite the hype, the buzz, and the appeal that Bitcoin and other cryptocurrencies have gathered. Furthermore, everyone is wondering whether this is merely a passing trend or if cryptocurrencies represent the future and are here to stay for the long term.
While everyone has a different opinion, some regulators believe that Bitcoin could become a significant player in the financial system. Others have expressed their optimism about the potential of blockchain technology while remaining critical of Bitcoin.
They believe that Bitcoin may have solved an information problem, but they question whether Bitcoin is the answer to the future of payments or even if it has any economic value at all.
Digital currencies: Regulation
At the moment, all forms of incumbent money are government-sponsored. They tend to have a legal tender status and the government accepts taxes and makes payments with this money. This government-sponsored money allows the issuer to conduct monetary policy and generate revenue. When it comes to Bitcoin, the crypto breaks the rules. It isn’t in agreement with government objectives as it does the opposite of our normal, everyday money.
It cannot be used to conduct monetary policy, raise revenue, or prevent any person from engaging in illegal transactions or fraud. For these reasons, some governments have taken steps to regulate bitcoin or ban it altogether. Some believe that the lack of any regulation in the cryptocurrency space may limit demand, as this uncertainty and ambiguity places Bitcoin in a grey area.
Alt-coins
Bitcoin faces further challenges by having to compete with many other cryptocurrencies, which are known as altcoins.
All cryptocurrencies face similar challenges.
These challenges relate to traditional currency currently in circulation. This traditional currency is regulated by banks and financial institutions. Additionally, cryptocurrencies have to compete with Bitcoin. Crypto BTC has an advantage as the first digital currency.
Alt-coins made their appearance immediately after Bitcoin. Litecoin, dash, dogecoin, and ripple are some of the popular alt-coins. Bitcoin remains the most successful and most familiar, with lower switching costs and the biggest network.
Alt-coins arrived later at the party. The fact that they followed Bitcoin allows developers to identify issues and implement necessary changes. For instance, while Bitcoin has a limited circulation of 21 million, Litecoin offers a maximum circulation of 84 million coins.
Digital Payments
Electronic transactions are growing with the rise of online shopping and simply for their simplicity and convenience. With everyone using their smartphones and most businesses accepting electronic payments, more and more people are inclined to make digital payments. The landscape is changing too, so digital payments become easier and more widespread. The COVID pandemic has also facilitated this, as it enabled more businesses and government organizations to conduct business online and avoid physical contact. It has now become the standard for everyone to pay via their card instead of carrying cash in their wallet.
Bitcoin’s promise of lower transaction fees
So, with blockchain technology, digital payments reach the next level. Now bitcoin offers the possibility of processing transactions over a distributed network without the intervention of a central authority such as a bank or clearing house. Blockchain technology will solve the current problem with high transaction fees as it is less costly than traditional payments. Some businesses have already taken steps to adopt blockchain technology. NASDAQ has already launched a blockchain-type digital ledger technology to manage equities with its NASDAQ Private Market platform.
The existing payment system appears attractive
At the same time, most users are happy with the existing payment system and don’t see any benefit in switching to a different system. So, while many believe that blockchain technology will be adopted to process transactions on the back, the average consumer will continue to use money instead of crypto. Many argue that Bitcoin has supported illegal transactions as it was the only currency accepted on the Silk Road, an online marketplace where users could buy illegal goods and services.
Facilitating small transactions
However many have argued that cryptocurrencies can be divided into many decimal places (8 in the case of bitcoin), and for this reason, they can facilitate small and more convenient transactions such as small tips.
Replacing weak currencies
Bitcoin and other cryptocurrencies can in fact function as more than niche money. In countries with weak currencies, bitcoin can gain widespread acceptance. Many have argued that in the future crypto may thrive in such an environment as a paper money alternative, allowing people to make digital payments. In a country such as Kenya, Vodafone’s m-pesa system is doing well as people have mobile phones and no money in the bank. In such cases where traditional money is unstable, users may use their phones to exchange cryptocurrencies.
Digital currencies: technological advance in payments
Cryptocurrencies such as Bitcoin pose a technological advance in the payment system. While it is difficult to make future predictions, many have argued that the future of Bitcoin is not favorable. With the recent collapse of crypto exchanges, after FTX misused users’ funds and was forced into bankruptcy, crypto is still the Wild West, as the Wall Street Journal put it.
However, digital transactions are the future and if blockchain technology reduces the costs of processing, then there is a future for Bitcoin’s underlying technology. As for Bitcoin and other cryptocurrencies, we are still far away from their mass adoption. In the CFD trading world though, they offer an alternative trading instrument that can be as exciting and rewarding as any other form of trading asset.
Digital currency trading with T4Trade
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Penafian: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
