Is this the true disruption of the global financial industry? There have been many stories told of millionaires being minted in this new world of finance called cryptocurrency. The famous Winklevoss twins that earlier sued Facebook heavily invested their funds into Bitcoin early on and have now been labeled as the first Bitcoin billionaires. Day traders of the 1300+ crypto-coins are also telling stories of becoming crypto-millionaires in very short periods of time. So what is this new and exciting, yet highly volatile market that is making the early adopters wealthy beyond even their greatest expectations? Could this serve a higher purpose than creating wealth based on the hype of a digital product that could very well be a rapidly declining fad, or is it just what the people need right now in the fight against government infringing more and more in our lives? 2018 will definitely be the year to determine cryptocurrencies validity as an asset class, or its demise as a fad. Read ahead for a brief, but greater understanding, of what is truly on the line here for the financial world.
There are many intricacies to what is going on, and I will briefly make a few points for you to think about and form your own opinions on. Please feel free to share those comments below when you finish reading.
First off, we have to understand what money actually is. A few characteristics are:
-Generally accepted as a form of payment
-Holds a value that is widely agreed upon
-The value is generally stable day-to-day
The US dollar, and other governmental currencies around the world, hold true to these characteristics. Notice that this also means that the US dollar is not actually backed by anything tangible. It hasn’t been backed by gold since 1971 ,yet this is often one of the first critiques against cryptocurrencies. So, the US dollar and Cryptocurrencies are literally only backed by the value we as people agree to give it. Other examples of high dollar items that are solely backed by the value we give them are classic automobiles, fine art, and diamonds. The value is derived from the scarcity of these items. With these standards of value, cryptocurrencies have a high possibility of becoming valuable as they become accepted by a global audience.
What is the main difference between countries moving forward with a centralized and government backed digital monetary system versus a decentralized digital currency controlled by the people that have invested in the potentially new global financial system? Control.
Countries already use fiat money as their form of currency, and much of that currency is stored on data systems in banks or other financial institutes in digital form. The financial institutes don’t actually keep your fiat deposits on sight. The next logical step for countries are to offer a digital currency that is backed by the economic health of the country. The main argument against this from the cryptocurrency community is that this still allows government control in “printing” more coins at will to help balance inflation or deflation.
In contrast, there are a few cryptocurrencies that have a chance at becoming the digital currency of the future. Some enthusiasts say that cryptocurrencies such as Bitcoin, Litecoin, Dash, or Monero could easily replace fiat money for daily use. The key difference is that no government can manipulate the supply of coins available to prop up their economy through inflation or deflation. The community that is invested in these coins is what gives them value as there is a greater acceptance of them globally. At the time of writing there are large organizations accepting cryptocurrencies as payments. Overstock and Shopify currently accept digital payments in Crypto, and Alibaba and Amazon are being urged by consumers to follow suit. By large online retailers accepting payments in cryptocurrencies it increases the legitimacy of the crypto-world as a whole.
The future of cryptocurrencies is highly uncertain, but it’s still in the early adoption stage. More infrastructure is being created based on the technology. Soon debit cards linked to your crypto account may be as common as debit cards connected to your bank accounts. Soon people may hold the power to send and receive money through the equivalent of an email address without having to pay excessive fees to banks and other money exchange services. The opportunities are endless when the people have greater control of their money. One thing is for sure at this moment in time, and that is that banks are gaining interest in cryptocurrencies as it is potentially a huge disruption to their profits. The governments are paying attention and starting to regulate it as well, because they are losing revenue from the unpaid capital gains taxes on the cryptocurrencies. Some financial institutions are open to working with crypto while others are still denying it as anything of value. The verdict is still undecided by the financial world as to what this all means for the future of money. Time will tell where this all goes. It may change the face of global money, it may make some wealthy individuals as they buy early and sell for a large profit, or it could all be gone in the near future to be written in the history books in comparison to the Tulip bubble, Internet bubble, and the Real Estate bubble.
It only takes a small disturbance in a pond for the ripples to be felt far away. Cryptocurrencies currently are currently gaining traction as part of the global monetary system. How far will it be felt as time goes on?
What are your thoughts? Leave your comments below.
Disclosure: The author of this article is an investor in Cryptocurrencies.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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