Anthony Ramolo
ICS4U1
Mr. Paterson
3 April 2018
The Future of Cryptocurrency
Introduction:
Over the past few years, the term cryptocurrency has been rapidly gaining the public eye with many banks, governments, companies and society becoming more aware of its importance. Cryptocurrency is recognized to be more beneficial for the general public than current fiat money, which leads many people to consider that virtual cash may potentially become the main source of currency in the future. However, the average individual may find the overall concept to be complicated and confusing, which is why it is critical to understand what is cryptocurrency, positive and negative aspects relating to digital currency, as well as the ethics of cryptocurrency.
Description:
Cryptocurrency is a digital asset designed to work as a medium of exchange that uses cryptography to generate money and verify transactions, while hiding the identity of its users. It is a type of, “Digital, alternative and virtual currency that use decentralized control, as opposed to centralized control used by central banking systems” (Aitken 2017). Virtual currency is designed to be quicker, cheaper and more reliable than our regular government issued money, such as the US Dollar. Instead of relying on the government to create money and banks storing, sending and receiving the currency, users of cryptocurrency transact directly with one another and store their money themselves, essentially eliminating the use of a middleman. A prominent example of current digital currency is Bitcoin, which was the first decentralized cryptocurrency, created in 2009 by an unknown individual or group called, Satoshi Nakamoto. When someone requests a transaction, it is broadcasted to a peer-to-peer network consisting of computers, known as nodes. Once the transaction is verified, it is then combined with other transactions to create a new block of data for the ledger. Every transaction is then recorded and added on a digital record kept by many people around the world, known as the “blockchain”. The data on the blockchain is publicly available and stored on many computers, in a way that is permanent and unalterable. The sudden massive explosion in Bitcoin’s popularity and interest, with an estimated 20 million pseudo-anonymous users, has caused its stock price to rise into the thousands of dollars. Other popular digital currencies gaining attention include, Litecoin, Ethereum and Ripple. Cryptocurrency is continuing to expand and offers users both, positive and negative aspects.
Positive Aspects:
The emergence of cryptocurrency as a digital alternative to traditional methods of exchange, like cash or credit cards, have also generated numerous positive aspects and advantages to users worldwide. A primary benefit for cryptocurrency relates directly with its transactions. In traditional business dealings, often including brokers, agents or legal representatives can add significant complications and expenses to an otherwise straightforward transaction. One of the advantages with cryptocurrency is that transactions are direct with one-to-one affairs, occurring on a peer-to-peer networking structure, which eliminates the use of a “middleman”. This leads to greater clarity and accountability, as well as less confusion, which means transactions are usually much faster, easier and affordable. Also, cryptocurrency transactions are more confidential since, “Under cash or credit systems, your entire transaction history may become a reference document for the bank or credit agency involved, each time you make a transaction” (Rosic 2017). When it comes to cryptocurrency, every transaction you make is a unique exchange between two parties, which allows the user to only transmit exactly what you wish to send to the recipient. This guards the privacy of one’s financial history and protects users from the threat of fraud or identity theft, unlike the traditional system, where information may be exposed at any point of the transaction chain. Furthermore, transactions fees for cryptocurrency are entirely eliminated on majority of occasions, by incorporating the use of data miners. Since data miners are responsible for the number crunching, many usually receive their compensation from the cryptocurrency network involved, which means any transaction fees will still be considerably less than the charges incurred by traditional financial systems. Another critical benefit to cryptocurrency is that it offers greater access to credit on a global scale. Digital data transfer and the internet are the only two necessities facilitating the exchange in cryptocurrencies, which means these services are potentially available to anyone with data connection. It is estimated that there are, “Currently 2.2 billion individuals across the world who have access to the Internet or mobile phones, but do not currently have access to traditional systems of banking or exchange” (Andrews 2016). This means that there is potential to make asset transfer and transaction processing available to the vast market of willing consumers. Perhaps the greatest advantage of all for cryptocurrency is it allows for individual ownership. In a traditional banking or credit card system, individuals effectively give stewardship of their funds over to a third party, that can potentially exercise their own power over these funds. With cryptocurrency, you are the sole owner of the corresponding encryption keys that make up your cryptocurrency network identity or address. As you can see, cryptocurrency offers multiple advantages to consumers, as only recently more individuals have begun to understand these benefits.
Negative Aspects:
All the advantages does not mean that there is no risk involved in using and investing in cryptocurrency, as such, it is important to identify and understand the drawbacks and obstacles that may refrain mainstream adoption of these technologies. One of the disadvantages with cryptocurrency is that it is not widely accepted, as currently countless websites and companies do not accept digital currency yet, which makes it impractical for everyday use. Do to the lack of acceptance, before buying or investing in cryptocurrency, it is important to make sure that it is accepted at a place where an individual may want to use it. Also, there is a possibility of losing your wallet, where users store their digital currency on a phone or computer. If the user forgets their password to one of the various encryption keys, then they run the risk of losing all their saved up coins with almost no chance of being able to retrieve it, even with the help of legal assistance. Furthermore, cryptocurriencies will be subject to cybersecurity issues and breaches, which may stem from the actions of hackers. The technology is relatively new and comes with a learning curve, which leaves many users and investors vulnerable to hackers. Mitigating this issue will require continuous maintenance and upkeep of security infrastructures, as well as individuals using their own enhanced cybersecurity measures. Price volatility and a lack of inherent value is another major reason mass adoption is taking longer than necessary. Price volatility is, “A rate at which the price of a security increases or decreases for a given set of returns” (Barnes 2018). Many corporations do not want to deal with a form of money that goes through huge fluctuations in volatility. It is an important concern that can be overcome, by linking the cryptocurrency value directly to tangible and intangible assets. Probably one of the biggest concerns with cryptocurrency is the problems with scaling that are currently posed. The number of digital coins is rapidly increasing; however it is still noticeably less than the number of transactions companies, like VISA, process each day. Additionally, cryptocurrencies speed of transactions are unable to compete with VISA and Mastercard, however, there have already been several solutions proposed, such as lightning networks, as options to overcome this issue. Warren Buffett recently commented on cryptocurrency and the risk for investors stating, “It does not make sense. This thing is not regulated. It is not under the control or supervision of any United States Federal Reserve or any other central bank. I do not believe in this whole thing at all. I think it is going to implode” (Boukhalfa 2017). Even if the technology is perfected and all the problems have been overcome, until the technology is adopted and regulated by federal governments, there will always be a risk for users and investors of digital currency.
Personal Opinion/Ethics:
In my opinion, cryptocurrency can be extremely beneficial to the public and society, as it brings many new innovative solutions to the current financial situation. However, the ethics behind cryptocurrency are complex and a major problem is whether the new currency will benefit society, as it becomes more widely adopted. There are several ethical dilemmas surrounding Bitcoin and cryptocurrency in general. One ethical issue is that Bitcoin can be used to evade taxes. Bitcoin provides a direct exchange of digital coins over the Internet for goods and services, which results in a decentralized electronic medium of exchange. This is a potential way for people to hide incomes and funds from the government. Furthermore, the underground market uses Bitcoin as their currency of choice and is ideal for many illegal transactions because of its private and anonymous nature. Cryptocurrencies have contributed to other illegal acts, due to, “The lack of consolidated control makes Bitcoin appealing to those wishing to engage in illegal activity or support dissident organizations” (Bisson 2015). Another ethical dilemma is that cryptocurrencies offers no official dispute resolution authority. Since cryptocurrencies eliminate the need of a third party, people have to manage funds on their own and if a mistake is made, no authority can intervene. I believe, cryptocurrency should not currently be used by national corporations and regulated by Federal agencies because of the numerous ethical issues it brings. Despite all the benefits and positive aspects it has to offer, cryptocurrency should solve these ethical dilemmas, as it may potentially create an unsafe and unfair platform for its users. Once it can ensure that all ethical issues have been addressed, then Federal agencies, such as the United States Federal Reserve, may begin to regulate and accept this innovative technology.
Conclusion:
In conclusion, the innovative idea of cryptocurrency has gained a lot of traction over recent years and offers users both, positive and negative aspects. Cryptocurrency will likely play a major financial role in the future. However, digital currencies, such as Bitcoin, still have numerous significant obstacles to overcome before they could totally replace current fiat currencies. Possibly one day in the near future, individuals may be purchasing their groceries at their local grocery store or candy at a convenience store using cryptocurrencies, such as Bitcoin.
Works Cited
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Barnes, Joe. “Cryptocurrency Volatility is not Going Away Any Time Soon”. Express.
2018 Express Newspapers, 26 Jan 2018.Web. 3 Apr 2018.
Bisson, David. “Buying Illegal Goods on the Digital Underground”. Tripwire. 2018
Tripwire Inc, 15 Jan 2018.Web. 3 Apr 2018.
Boukhalfa, Sofiane. “What are the Disadvantages of Cryptocurrencies?” PreScouter.
2017 PreScouter Inc, 16 Nov 2017.Web. 3 Apr 2018.
Rosic, Ameer. “7 Incredible Benefits of Cryptocurrency”. HuffPost. 2018 Oath Inc, 23
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