Why do experts refer to cryptocurrency as a potential monetary tool?

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Experts have proposed that this technology be used to replace national currencies and create a new global reserve currency. There are many reasons behind such claims, ranging from improved efficiency to increased security and transparency. However, what is most striking is the potential attributed to bitcoin as a monetary tool, especially considering current macroeconomic trends.

It should be noted that to understand these claims entirely, it is essential first to address the very nature of money itself. Money is a social tool that allows people to exchange goods and services and equates to value tokens. Because it is a social construct, money must be created by a government authority or an autocratic regime, unlike other assets such as gold.

Commodity money represents all the valuables that people agree have value and can be used for trading.

Transformational Technology:

The most important feature of blockchain technology is the immutable nature of its database. Any action to change this data, in other words, modify it, would require agreement from all parties and, in most cases, a re-transaction. Furthermore, blockchain technology also has a robust identity management mechanism as part of the system. All users are registered through their digital identity, secured via multi-factor authentication and integrated with KYC (Know Your Customer) systems. It makes transaction verification possible even if a third party is involved and tracks transactions across different platforms in both physical and crypto space.

Stable, Censorship-Resistant Store of Value:

A claim often made by experts and enthusiasts is that cryptocurrencies can be a stable store of value. It is because the distribution of tokens cannot be manipulated by governments or central banks and cannot be artificially inflated or deflated. As such, unlike fiat currencies, crypto coins do not have any intrinsic value in themselves but are valuable only because other people agree with them.

Cryptocurrencies provide greater independence from the national currency systems and can be exchanged for fiat currencies without any issues. In addition, it provides stability and prevents these digital coins from being subjected to volatile exchange rates. For example, the exchange rate of bitcoin is determined by its demand and supply in the global market with little to no interference from authorities.

Innovation for Small and Medium Enterprises:

While large enterprises can get away with implementing blockchain technology without decentralizing their structure, small businesses and non-profits often need more resources. As such, they are often forced to use centralized solutions for several issues. The first is high costs, leading to low profits or, even worse, complete failure. It is often the case when hackers target small businesses.

Another issue is that these centralized solutions usually require a large amount of trust in the third party and can also be a single point of failure. Because it allows users to make peer-to-peer transactions as well as store their data in an encrypted format, blockchain technology is ideal for small and medium enterprises. With blockchain technology, small and medium enterprises can easily create decentralized marketplaces to sell their product or service globally without investing heavily in development costs.

Potential or Speculation?

It is essential to separate hard economic facts from the hype surrounding cryptocurrencies. While most of the use cases proposed by experts have yet to be realized and are likely to take decades, some observable trends in the market can already be attributed to bitcoin’s price appreciation. These trends include a surge in trading volume, increased value of crypto coins as collateral for loans, and increased issuance and uptake of security tokens. However, such developments provide only circumstantial evidence rather than undeniable proof of the potential for cryptocurrencies.

Conclusion:

While experts are divided over cryptocurrencies’ future and underlying blockchain technology, their potential cannot be denied. The technology used to create these digital assets is a game changer for the future. In the long term, we will see many more use cases emerge with greater adoption by governments and enterprises.