What will the future of money look like? Imagine walking into a restaurant and looking at the digital menu board on your favorite combo meal. Only, instead of being priced at $8.99, it’s displayed as .009 BTC.
Can cryptocurrencies really be the future of money? The answer to that question depends on general consensus on several key decisions ranging from ease of use to security to regulations.
Let’s examine both sides of (digital) currency and compare and contrast traditional fiat money with cryptocurrency.
The first and most important component is trust.
It is imperative that people trust the currency they are using. What gives the dollar its value? Is it gold? No, the dollar hasn’t been backed by gold since the 1970s. So what gives the dollar (or any other fiat currency) value? The currency of some countries is considered more stable than that of others. Ultimately, it is the trust of the people that the issuing government of that money stands firmly behind it and essentially guarantees its “value”.
How does trust work with Bitcoin, since it is decentralized, meaning there is no governing body that issues the coins? Bitcoin sits on the blockchain, which is basically an online ledger that allows everyone to see each and every transaction. Each of these transactions is verified by miners (people who operate computers on a peer-to-peer network) to prevent fraud and also to ensure there is no double spending. In exchange for their services in maintaining the integrity of the blockchain, miners are paid for each transaction they verify. Since there are countless miners trying to make money, each one checks the others’ work for errors. This proof-of-work process is why the blockchain has never been hacked. Essentially, this trust is what gives Bitcoin its value.
Next, let’s look at trust’s closest friend, security.
What if my bank is robbed or there is fraudulent activity on my credit card? My bank deposits are covered by FDIC insurance. Most likely, my bank will also reverse any charges on my card that I never made. That’s not to say criminals can’t pull off stunts that are frustrating and time-consuming to say the least. It’s more or less the peace of mind that comes from knowing that I will most likely be recovered from any wrongdoing against me.
In crypto, there are many options when it comes to where to store your money. It is imperative to know if the transactions are insured for your protection. There are reputable exchanges like Binance and Coinbase that have a proven track record of correcting their customers’ mistakes. Just as there are fewer reputable banks around the world, the same goes for cryptocurrencies.
What happens if I throw a twenty dollar bill into a fire? The same is true for cryptocurrencies. If I lose my login credentials to a certain digital wallet or exchange, I will not be able to access those coins. Again, I cannot stress enough the importance of doing business with a reputable company.
The next problem is scaling. Currently, this might be the biggest hurdle preventing people from doing more transactions on the blockchain. When it comes to the speed of transactions, fiat money moves much faster than cryptocurrencies. Visa can handle about 40,000 transactions per second. Under normal circumstances, the blockchain can only handle around 10 per second. However, a new protocol is being enacted that will shoot this up to 60,000 transactions per second. Known as the Lightning Network, it could make cryptocurrencies the future of money.
The conversation would not be complete without talking about convenience. What do people tend to like about their traditional banking and spending methods? For those who prefer cash, it’s obviously easy to use most of the time. If you’re trying to book a hotel room or a rental car, you need a credit card. Personally, I use my credit card everywhere I go because of the convenience, security, and rewards.
Did you know that there are companies that offer all this in the crypto space as well? Monaco is now issuing Visa logo cards that automatically convert your digital currency into the local currency for you.
If you’ve ever tried to transfer money to someone, you know that the process can be very tedious and expensive. Blockchain transactions allow a user to send crypto to anyone in just minutes, regardless of where they live.