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No other topic has been ubiquitous across the globe — with the exception of coronavirus, of course, how can we forget to mention that— than cryptocurrencies. Strange that something called crypto meaning secret or concealed is the most widely discussed and analysed and dissected topic in recent times. If one were to draw an analogy — bitcoin is the equivalent of a variant of the currency, which is going to reduce the need for physical cash, as we know it. The virus pandemic has triggered tectonic shifts in the financial sector to bring about a financial pandemic, which is hastening the creation of new digital currencies.
The first cryptocurrency in the world, Bitcoin, was introduced in the year 2009. Though the name Satoshi Nakamoto is often synonymous with Bitcoin, no one has traced him or the group he or she represents. Bitcoin is the result of a decentralised and distributed digital cash system, which is configured using a digital ledger known as the blockchain transaction database. What is significant to note that it is a completely self-contained form of digital currency, which does not need any bank to store or make transactions, transferring to digital wallets, stored on the mobile phone or computers somewhere in the cloud. What makes it so attractive is that it is forgery resistant.
Some of the leading cryptocurrencies in the world, besides bitcoin are Ethereum, Cardano’s ADA, Binance Coin (BNB), Solana, XRP, Polkadot’s DOT, Tether and USD (USDC). USD and Tether are what are known as Stablecurrencies, which means that it is linked or tethered to the US dollar. This guaranteed 1:1 gives it a stable edge and makes it a stable form of exchange.
According to Eswar Prasad, author of “The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance, “the era of cash is drawing to an end and that of central bank digital currencies has begun.”. Already, many nations are working furiously round the clock to restructure the management of the monetary systems. Financial pundits have predicted that cryptocurrency, stablecoins, CBDC’S or Central Bank Digital Currencies and other payment systems will replace cash.
El Salvador became the first country in the world to make bitcoin legal tender on June 9, 2021. Anyone can transact in bitcoins if the businesses accept it. What is still their primary currency? The US dollar. The Bahamas have already rolled out the world’s first CBDC, which has a desert touch in its nickname, The Sand Dollar.
The real time processing of cryptocurrencies, with all its energy infrastructure and mining costs will no doubt increase speed of transactions and reach out to all classes of customers, but will it lead to a perfect system? That is a question that we need to ponder about and mull over. It may democratise finance, but will it bring about equity in income and wealth? The vast majority of the world are the poor and the marginalised, who have zero or limited financial literacy and limited digital access, and these will be hit hard as this tectonic shift in the financial system takes place. The economies of the smaller and poorer countries will be swept away unless they are fully prepared to measure upto the new way of doing business.
We are on the cusp of a humongous change in the way money is exchanged and transacted, since it is the lifeblood of the financial system. Not just money, but every aspect of society shall be impacted. It has tremendous and lasting impact on society. The future course of money should be carefully charted. Alvin Toffler , of Future Shock fame, once presciently remarked that “ the future already has begun. Or, put another way, the present has long since begun to grind to a halt.”
