11.04.2022 Finance Farvest Decrypt Luxembourg

The rise of cryptocurrencies in the economy

Cryptocurrencies are to change the economy as we know it today. They have already become a prevailing solution for finance and investment. According to the Republican Policy Committee, several cryptocurrencies “dominate the market, with Bitcoin accounting for 41% of the industry’s total market value”. Considering this, the European Parliament – among other governments – has adopted a legislation to regulate cryptocurrencies use.

Crypto Chartis declared that “cryptocurrencies are the future of finance”, which means that fiat currencies are in decline. A fiat currency refers to a government-issued currency whose value is pegged to the government that issued it. According to Investopedia, “the value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it.”.

Although fiat currencies can provide economic stability, it presents different limitations. For example, it can be the cause of inflation, can be subject to central bank manipulation, or it can result in high fees when it comes to international transfers.

Cryptocurrencies do not present these features, hence why there are chances that they may take over fiat currencies. Cryptocurrencies represent digital assets that are based on blockchain technology. Bettina Warburg, a blockchain researcher, defines the blockchain technology as a “decentralized database that stores a registry of assets and transactions across a peer-to-peer network.”. Since cryptocurrencies are decentralized, it means that the government cannot access them nor control them.

She also explains that cryptography helps secure transactions, and that transaction history is securely saved in blocks of data that are cryptographically linked together. The transaction record is thus immutable and any transactions are trackable. According to the Republican Policy Committee, cryptocurrencies are believed to provide higher security and privacy in financial transactions.

For instance, Bitcoin was the first cryptocurrency ever created, following the turmoil of the 2008 Great Recession. Overtime, the use of Bitcoin has become popularized as even companies gradually start to accept it as a payment method. During the Bitcoin Conference 2022, McDonalds’ and Starbucks – among others – have announced that they will soon accept Bitcoin as a means of payment. Although Bitcoin is still gaining popularity and value, other cryptocurrencies are gradually emerging on the market, such as Ethereum or Litecoin.

The rise of cryptocurrencies is already starting to affect the global economy. As a matter of fact, central banks are losing their influence over interest rates as well as money printing. This could mark the beginning of the end of central banks. Therefore, the banking system, based on fiat currencies, might significantly change in the next few years. It is time now to truly invest in cryptocurrencies, as they represent a secure alternative to fiat currencies and surely the future of banking.