Impact of cryptocurrency: Economic game-changer

With how highly valued cryptocurrency is now, it might be hard to believe it came from humble beginnings. Barely anyone paid attention when the first ever cryptocurrency, Bitcoin was launched by Satoshi Nakamoto in 2008. It was only in 2017 when BTC surpassed the $10,000 mark during the ‘crypto boom’ did Bitcoin and its underlying technology gain the public’s attention.

Since then, more investors and financial institutions have acknowledged the potential of cryptocurrency in improving financial transactions across borders, causing more virtual currencies to appear all around the world. Nowadays, people are starting to use cryptocurrencies as a medium of exchange for daily transactions rather than a long-term investment option.

With its mainstream adoption on the horizon, you need to know the extent of cryptocurrency’s impact on the economy to understand how it can revolutionize the world. Here are some of the ways cryptocurrency has affected the economy:

• Eliminating the need for the escrow system

Unlike traditional currency, crypto provides users with seamless, secure and decentralized transactions that eliminates the need for an intermediary. Rather than going through a central institution to verify your records, transactions using cryptocurrencies are validated by a network of computers to ensure its legitimacy.

The absence of a third party also makes transactions faster and cheaper since it doesn’t have to go through strenuous processes and legalizations.

However, this freedom of users to conduct transactions outside the influence of central authorities caused concern for banks and governments because it eliminated the need for their services. Due to this reason, cryptocurrencies remain banned in some countries despite its growing global popularity.

• Reduced reliance on fiat money

One of the advantages of cryptocurrencies over fiat money is that it is free from any economic and political attachments that affect traditional currencies such as laws and inflation.

Since cryptocurrencies are a medium of exchange much like traditional currency—sans the long processes, intermediary, and centralized authority—users are now opting to use digital assets for every day exchanges.

Additionally, international transactions become less reliant from the US dollar. Since the USD acts as the reserve currency for the global economy, there are more processes involved before a transaction can go through to the account of the receiver.

However, with cryptocurrency, you no longer need to convert to US dollars just to make cross-border transactions. With this, international transactions become faster and more seamless.

• Cryptocurrency as a hedge against inflation

Due to its popularity and decentralized system that allows more freedom for business transactions, more investors have added cryptocurrencies to their portfolios. This is because allocating crypto in their investment portfolios improves the upside of their investments.

In a report by VanEck, an investment management firm in New York, small allocations to cryptocurrencies can significantly boost the cumulative return of a 60% equity and 40% bonds allocation mix. Moreover, it only causes minimal impact on the volatility of the allocation. For this reason, investors are starting to see cryptocurrency as a hedge against inflation.

Unlike fiat where central institutions like banks can produce more money and devalue its price, most cryptocurrencies have limited or fixed supply. This means that its value can only increase the more scarce it becomes over time.

• International remittance industry

For growing economies, overseas remittance drives the economic growth of the country. For this reason, many people work overseas to send money to their loved ones back home. In the traditional financial system, this money has to be handled by intermediaries, which includes banks and other money transfer services that charge high transaction fees.

Not only that, but the process is also slow, taking a few days before the other party can access the transferred funds. With cryptocurrencies, you can securely transfer funds anywhere in the globe in a matter of seconds to hours with minimal charges.

Digging through the concept of cryptocurrency

Now that you have an idea of how cryptocurrency has changed the economy, take a look at the concept behind this digital currency that made it so impactful in the financial global scene:

• Security

Transactions with cryptocurrencies are recorded in a digital ledger called a blockchain. It is a ‘chain’ of information where transaction records are stored in blocks that are then authenticated by the nodes in the network through a consensus algorithm.

Once it is verified, the block that contains the data of the transaction, including its hash and the previous block’s, is then added to the blockchain. It is through this process that cryptocurrency can provide a secure transaction.

• Decentralized

One of the main selling points of cryptocurrency is its decentralized system that completely removes the interference of third parties or central bodies. Unlike fiat currency where banks and other institutions have authority over your funds, in cryptocurrencies, users have full control over their funds and transactions.

• Anonymity

Cryptocurrencies provide more privacy compared to traditional currencies. It uses encrypted addresses to serve as a ‘pseudonym’ for the parties involved in the transaction. This way, no personal information is required to conduct an exchange. Each user is given two keys: public and private keys. The public key is used to send and receive funds. Meanwhile, private keys allow users to access their cryptocurrencies.

Cryptocurrency’s relationship to the economy

Since its introduction, the global community has seen cryptocurrency grow, and in the past decade, it has already impacted and changed the processes of various industries. It captured the attention of the public with the convenience and security it provides through its unique technology.

Now, big players such as governments, influential companies and financial institutions are looking into how they can adopt this technology and further improve their systems to keep up with the fast-paced and ever-evolving world of cryptocurrency.

Given time, cryptocurrencies will soon change how global transactions are made, eliminating borders and creating more bridges that will further improve the world’s economies.p