Written By: Katie Jung
Edited by: Nanthana Sureshkumar, Tika Sathyanarayanan, and Veronica Cifuentes
As the end of 2021 comes near, the debate on whether cryptocurrency represents the future of finance has continued to escalate. But what does this mean for the future?
First of all, let's talk about what exactly cryptocurrency is. Created in 2009, cryptocurrency is a type of digital/virtual currency, designed to be used all over the internet. For example, Bitcoin, Ethereum, Binance Coin, and Dogecoin are just a few of the various types of cryptocurrencies that may play a large role in the future economy. In fact, The Statistica reports that the user base of cryptocurrencies has increased by nearly 190% between 2018 and 2020, and it is estimated that there will be more than 300 million cryptocurrency users across the world by the end of 2021.
Clearly, Cryptocurrency has increased in popularity over an extremely short period of time. So why crypto?
There are a multitude of reasons why people may prefer cryptocurrency over traditional payment methods.
First, cryptocurrency is regulated under a 'decentralized control', meaning it isn’t controlled by one person or government. Thus, the World Financial Review explains how investors view cryptocurrencies as a safer way to protect their wealth and identity, without any restrictions.
There are also negative aspects due to this lack of regulation. Online crime has increased with cryptocurrency as criminals are able to remain anonymous whilst making illegal transactions. In fact, Chavez-Dreyfuss of Reuters reported 1.9 billion in losses in the crypto sector through fraud and crime in 2020, and a record $4.5 billion in 2019.
On the other hand, some argue that cryptocurrency does the exact opposite of protecting one's privacy, as the data universality proves how the data of transactions can be potentially viewed by all users. Bitcoin's official website states that all transactions are public, traceable, and permanently stored in the Bitcoin network, making it the most transparent payment network in existence. Problematically, James Ledbetter, editor of fintech newsletter FIN and CNBC contributor, finds that with cryptocurrency being so public, “there's always potential for a security risk.”
Despite the risk , some investors see great potential for profit. The WFR furthers how people who adopt cryptocurrency are also adopting major technological innovations such as blockchain, which helps in the verification, traceability, and speed of transactions and data transfer processing. Crucially, people view cryptocurrency as a safer, more secure option to pay for items as Ramsey Solutions analyzed a recent study by Piplsay, showing that 50% of Americans think investing in cryptocurrency is safe.
In contrast, other investors have strayed away from using cryptocurrency due to its high volatility. CNBC explains how high volatility is inevitable in the cryptocurrency market, reporting how Bitcoin plunged as much as 30% to about $30,000, and Ethereum dropped more than 40% in less than 24 hours, breaking below $2,000 at one point. Shockingly, both gained back substantial ground by the end of the day. Thus, investors realize that high volatility means a much higher risk in price fluctuations that may happen in the future.
Furthermore, many believe cryptocurrency is relatively easy to acquire, with low fees. In fact, El Salvador has officially adopted Bitcoin (which is a popular form of cryptocurrency) as legal tender, hoping to solve their economic remittance crisis of citizens sending money home from abroad, leading to high transaction costs. With the adoption of Bitcoin, El Salvador aims for a quick, cheap payment system across borders, without requiring banks.
However, this adoption of cryptocurrency has sparked protests against Bitcoin amongst the citizens of El Salvador. Indeed, protesters have expressed their concern over the volatility of cryptocurrency, knowing it fluctuates rapidly in the market, making it extremely possible to lose an enormous amount of money in a very short time.
In fact, the India Times quoted a protester, "This is a currency that's not going to work for pupusa [food item] vendors, bus drivers or shopkeepers, this is a currency that's ideal for big investors who want to speculate with their economic resources."
Essentially, while cryptocurrency gives wealthy investors hope to gain more money in the future, many citizens are wary over the unfamiliar and risky concept. In fact, a recent survey of 1,000 people across the U.S, Mexico, and Brazil showed that 98% of people don’t understand basic crypto concepts. That being said, how can investors expect others to use cryptocurrency when they dont have the same resources they might have? More importantly, If the general public doesn’t seem to understand how cryptocurrency works, how can we expect it to be the future of finance?
The Fortune concludes by quoting another protester, “Bitcoin is a law that benefits only wealthy business people.”
So while the popularity and usage of cryptocurrency has increased, so has the growing controversy over this new, digital form of money.
In fact, a panel of cryptocurrency experts predicted that cryptocurrency will overtake the U.S. dollar as the dominant form of global finance by the year 2050, while others have warned against investing in cryptocurrency due to the risky and expensive maintenance necessary for it to work.
Whether or not cryptocurrency will improve our lives is only a matter of time, and as more people start utilizing this payment method, it brings either one of two things: hope, or fear.
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