We are slowly about to enter a new era of finance that will transform how we use and manage money, one of our most basic tools, by utilizing various technologies. Nowadays, many people only make financial transactions online. This trend has intensified over the previous two years. In the future, money will increasingly be transferred via laptops and phones using Ether. The benefits of bitcoins are winning people over to the era where they don’t have to stand in queues to get cash to make purchases. Looking at the grand scheme of things, what is the future of money? What are the roles of these cryptocurrencies in global finance?
The Global Finance Market
Cryptocurrencies have developed from digital novelty items to trillion-dollar technologies that can upend the world financial system in a matter of years. More and more people are holding Bitcoin and hundreds of other cryptocurrencies as investments and using them as money to purchase a wide range of products and services, including software, virtual real estate, and illicit substances. Cryptocurrency enthusiasts see it as a democratizing force that will command authority over money generation and circulation away from central banks. However, detractors claim that the unregulated nature of cryptocurrencies encourages terrorist groups, criminal enterprises, and rogue regimes and that the assets exacerbate inequality, experience extreme market volatility, and use enormous amounts of electricity. Global regulations differ significantly; while some countries support cryptocurrencies, others prohibit or restrict their usage. To compete with the cryptocurrency explosion, 114 nations — including the US — are considering launching their central bank digital currencies (CBDCs) as of February 2023.
Cryptocurrencies are virtual coins that users exchange on a decentralized network known as the blockchain. This open-source system removes the need for a central authority, like a bank, to validate transactions and stops coins from being copied. The most well-known cryptocurrency is Bitcoin, which was founded in 2009 by the anonymous software programmer Satoshi Nakamoto. At its peak, its market value was more than $1 trillion. Several others have sprung up recently, Ethereum being the second most popular.
Examples of cryptocurrencies include:
- Bitcoins
- Ethereum
- XRP
- Litecoin
- Tether
- USD coin
- Binance coin
- Dogecoin, etc.
Exploring Cryptocurrencies
Crypto’s popularity points to the fact that the technology is on its way to becoming a macroscopic disruptor in the global economy in the next few years. As a result, many businesses, financial institutions, and investors — many suffering from severe FOMO — are attempting to determine the possible financial gains from investing in cryptocurrencies. About 300 million people worldwide, or 4% of the total population, use cryptocurrencies in some capacity, and some industry gurus anticipate that number to climb sharply by the end of the decade.
For example, by 2024, at least 20% of major businesses will utilize digital currencies as collateral, a store of value, or a means of payment, upending established financial networks and business structures. In the last year, the value of stablecoins, a type of token linked to a fiat currency like the US dollar and hence more “stable” than a decentralized currency, has more than quadrupled from $29 billion to $163 billion. Their appeal can be attributed to their steady value and ability to provide more transparent and efficient value transfers than older payment networks.
Upcoming Trends
In the coming years, investors will likely show great interest in and acceptance of cryptocurrencies as a hedge against inflation and as a gold substitute. It is still a very erratic investment, though. At present, the value of a Bitcoin stands at approximately $31,187, a significant decrease from its peak of $68,223 on November 10, 2021. Despite this, there are few indications that businesses or investors are losing interest in the potential profits that cryptocurrency may provide. That goes beyond merely making predictions about cryptocurrency prices. Several investors and businesses are also considering cryptocurrencies to enter the decentralized finance, or DeFi, space. Avivah Litan, a distinguished analyst, claims that Companies want to get in on the action; even the hedge funds are putting more money into cryptocurrency.
Global governments are currently opening up to blockchain technology and cryptocurrency. According to a Gartner study, 83 nations have experimented with or implemented so-called Central Bank Digital Currencies, or CBDCs, which account for 90% of the world’s GDP. As of June 2021, China, which recently forbade miners from mining any kind of decentralized cryptocurrency in favour of instituting its own—the “digital yuan”—had given its citizens over $5 billion in digital yuan. Meanwhile, India’s government is mulling over how to tax cryptocurrencies while its central bank creates its own CBDC. Taking decisive action against crypto scams and other misuses will help the rise to mainstream and widely accepted legitimacy. Scams that have been more popular recently include “rug pulls,” in which developers create seemingly authentic cryptocurrency ventures before taking investors’ money and disappearing. In the meantime, North Korean cybercriminals stole about $400 million of digital assets in 2021 after launching at least seven attacks on cryptocurrency platforms directed at central exchanges and investment businesses. However, there is good news with the sharp rise in bitcoin use in 2021; illegal activity is at an all-time low. According to Chainalysis, cryptocurrency transactions involving illegitimate addresses dropped to 0.15% in 2021 from 0.62% in 2020.
Conclusion
In terms of the future of money, blockchain technology also has advantages for customer loyalty incentive systems. Customers have long resented loyalty and rewards programs because they felt that they were unaccountable to them. When you sign up, you may expect to receive discounts on services or products when you redeem points, but there are restrictions on when and how you can use your points. Eventually, the dissatisfaction and disappointment result in declining sales and clientele. Retail companies are implementing blockchain technology to track and manage transactions as customers increasingly choose online shopping to improve the user experience by offering additional dimension, flexibility, clarity, and transparency. Weighing the pros and cons shows a shift toward the positive side of the future of money with the implementation of cryptocurrencies. According to studies, its role in global finance indicates a better economy for most countries. Some governments have realised and are adjusting their policies to fit the use of cryptocurrencies. It’s only a matter of time before the ripple effect spreads to other countries – and continents.