For millennia, humans have used one thing to purchase another. From shells in Southeast Asia to clay tablets in the Middle East, man has looked for convenient ways to prove his wealth.
You’ve come a long way, baby
Fast forward to the 21st century, we know we have evolved. Even our cars drive themselves! So how come we are using money in essentially the same way our grandparents did? The way we transfer money is based on accounting systems first developed in Renaissance Italy.
Why is it, for example, that we need to factor in office days for bank transfers to go through? Why do we still accept high margins when transferring currencies?
The time is ripe for change.
What is it?
Bitcoin is the world’s most recognizable cryptocurrency. It was the first to be available and also (at the time of writing) the most valuable cryptocurrency against the US dollar. However, there are many more currencies available. But for the sake of this article let’s concentrate on Bitcoin.
The currency was first coined in a whitepaper published by Satoshi Nakamoto, a secretive developer or group of developers. The 2008 paper suggested a “purely peer-to-peer version of electronic cash” allowing “online payments to be sent directly from one party to another”.
At a time before services like Uber and Airbnb, this was completely unheard of. At first, only a few diehard financial pioneers decided to give it a go. Since then the currency and the system upon which it is built entered the mainstream and is used by millions of users around the world.
The fact that bitcoin transactions are almost completely anonymous and instantaneous, while at the same time involving fewer charges than their more traditional peers, make cryptocurrencies the answer to many of our prayers.
How is it used?
Like any currency, bitcoin can be used to purchase goods and services. An increasing number of retailers and providers now accept cryptocurrencies as payment. But that’s not all of it.
Bitcoin may be used as a tool to transfer money across borders, particularly in places where access to banking services is scarce or even non-existent. This can include remote areas of the globe, or even countries where political and social suppression are rife. Cryptocurrencies can give residents in these places an opportunity to live an independent life, at least financially.
Cryptocurrencies are also starting to be accepted by financial experts as a good diversification to portfolios. Traditionally in times of recession, people turn to gold for investment. But this option is becoming increasingly scarce, as large funds hoard up precious metals. Now investors are turning to cryptocurrencies to anchor a part of their portfolios. Major websites have gone into a lot of detail into how Bitcoin regularly trumps gold in terms of return on investment.
The fundamental tenet of economics is the rule of supply and demand, which states that the availability and market appetite of an item determines its price. The finite availability of Bitcoin – Satoshi’s whitepaper says there is only a maximum of 21 million coins that can be mined – means that the supply is limited. Unlike global currencies, central banks cannot print more money (cryptocurrency) when they need it, increasing inflation.
Therefore, in this case, only the demand for any given currency determines its price against other currencies. The fact that Bitcoin is the most talked-about currency at the moment is reflected in its relatively high price compared to its competitors.
The future of cryptocurrencies is almost certainly a good one. To paraphrase one of the best films of the 1990s, “Sometimes, there’s a coin, well, a coin for its time and place”.
At no other time in history could cryptocurrency ever work as well as it does now. All the elements – the computing power necessary, the desire for anonymity, and a higher acceptance of peer-to-peer services have aligned to make cryptocurrencies feasible and profitable.
The time of cryptocurrencies has come. The world is taking this seriously. And so should you.