How Do Cryptocurrencies and Tokens Influence Global Economy and International Financial Systems?
Cryptocurrencies and tokens will alter the standpoint and the world of economy and financial processes. It is the very thing that is assumed by many experts and activists in these fields. Altogether, do cryptocurrencies and infrastructures like Blockchain, which are the environment for the activity of cryptocurrencies have sufficient capacity to make such changes? In response to this question, it should be stated that cryptocurrencies and infrastructures like Blockchain will be more effective in the world of economy and financial affairs more than what was expected. Bitcoin came into being around 2009, and after that, other cryptocurrencies were added to the collection of new and adventive currencies. Undoubtedly, new concepts and tools that cryptocurrencies own will have various effects on the world of economy and communications and financial transactions. Holding digital tokens means holding a tradable asset, and that is the beginning of entering new members from the world of trade, economy, and financial affairs.
What Is the Capacity of Cryptocurrencies in the World of Economy and Communications?
It might be strange that how the cryptocurrencies which are just ten years old, cause changes in the world of economy. From the main advantages and impresses of these cryptocurrencies in the world of economy, solutions can be pointed out that well pave the way for removing different problems. Before the advent and creation of cryptocurrencies in the digital world, there have been frequent attempts to create digital money, but measures taken in this regard were insufficient and couldn’t solve different problems like “double spending.” By double spending we mean using a token more than once in financial transactions; however, Blockchain and digital currencies completely resolve problems such as double spending with their entrance to the world of communications and financial transactions. The network wherein cryptocurrencies like Bitcoin are traded, do not let any alteration or tampering with for the users. Besides, the data require general verification in order to be registered in these systems.
Solutions and strategies cryptocurrencies offer have played an effective role in empowering their presence in a short time. For example, let us speak a little about one important issue; i.e., mining cryptocurrencies. Generating cryptocurrencies is idiomatically called “mining.” Mining is, in fact, a process in which cryptocurrencies like Bitcoin are generated, and cryptocurrency transactions are confirmed too. Cryptocurrency miners are also users who join the Blockchain network and similar systems. Blockchain and systems working with this algorithm are highly accurate and extensive, and although they can be used comfortably, an elaborated and amazing design is behind them. Blockchain and its peers are not useful just in financial industries; they have the capability in various extensive affairs.
Which Changes Do Cryptocurrencies Make in the Current World of Economy?
Every new phenomenon comes along with a series of hopes and fears to the world. As it was pointed out earlier, cryptocurrencies can dramatically change the world of financial affairs, economic trades, and communications through their constructive alternatives. Cryptocurrencies operate based on a decentralized system and remove any middlemen from each communication and trade. It shows that from the very advent of different cryptocurrencies in the world, many great concerns have been arisen among stockholders of trading markets and players of the economy in the world. For instance, banks and financial institutes will be in the route of persistent threat, or when everybody can generate his/her unique cryptocurrency in the market after passing a process, it is clear that actual well-known currencies like the dollar will face problems, challenges, and threats too. Probable evolutions resulting from the existence of cryptocurrencies will be explained about more in the following sections:
Cryptocurrencies Challenge the Dollar
All know that the global economy is strongly dependent on USD. If cryptocurrencies are included in daily trades and financial transactions, the dollar will not enjoy its former importance. Cryptocurrencies which are somehow capable of being traded in a no-middleman way and no matter where in the world the process of trades will be carried out, they will make dollar valueless and its strength ineffective.
Cryptocurrencies Remove the Middlemen from the Trades
Why are cryptocurrencies popular? One of the reasons of popularity and fame cryptocurrencies such as Bitcoin is not needing any middleman for trading. It is obvious that the world of financial and commercial transactions will continue living needless to any middleman more fluently and without any obstacle. Suppose that financial transactions are conducted in a few seconds in international aspects easily. What’s your idea about such a possibility? Certainly, the world of no-middleman transactions will be more productive than the one wherein days and hours are required to do every transaction.
Cryptocurrencies Open a New Window to Crowdfunding
Crowdfunding is the public attempt for investment and financing different projects. These projects are usually designed and implemented by the entrepreneurs, and the financial need of various projects is met through crowdfunding by different people as the investor. To put it more precisely, through crowdfunding the process of developing various projects owned by startups and other companies will get operationalized faster. With cryptocurrencies and Blockchain, the process of crowdfunding will become much simpler. The most important tools of crowdfunding in the world of cryptocurrencies and Blockchain are the ICOs. What do we mean by ICO? It is providing the possibility of investment and activity through offering and awarding coin; that is, cryptocurrencies enable some startups and activists in the field of Blockchain to invest and work. Through ICO, different cryptocurrencies such as Bitcoin and Ethereum will not need using traditional methods such business angels or venture capitalists anymore, which provide financial opportunities for the entrepreneurs.
What Are the Effects of Cryptocurrencies on Exchange Tradable Funds?
Cryptocurrencies like Bitcoin are affective on tradable exchange funds. There have been many attempts to launch tradable exchange funds for Bitcoin so far. However, in a country like the U.S., all these have been banned by the government and the U.S. Securities and Exchange Commission. Some experts believe that sooner or later, cryptocurrency exchange tradable funds will start working and can greatly help their price stability. These funds can give the opportunity for cooperation in economic affairs to many inexperienced people in the world of cryptocurrencies.
Cryptocurrencies Create New Payment Methods in the World
Cryptocurrencies can introduce a new generation of payment methods to the world. As the cash was used for payments in the past and debit cards and credit cards were turned into an important member of payment world by developing different methods in this field, cryptocurrencies and Blockchain are changing this field to a new form. In fact, cryptocurrencies, too, are making fundamental changes in the world of payments and can significantly help the growth of their maturity cycle in the world of economy.
Using cryptocurrencies such as Bitcoin, Litecoin, and Ethereum has become very prevalent in some countries for paying taxis, buying an airplane ticket, and many others. Entering cryptocurrencies to retailers means its wide popularity in public. For example, big and credible company Facebook has planned to amazingly help cryptocurrencies’ development through offering its unique cryptocurrency, which is a stablecoin and backed by actual currencies like the dollar. The outlook of this company is the possibility of using cryptocurrencies and transacting with them in the infrastructure of messengers like WhatsApp. As a result, everyone can comfortably and simply do his/her financial transactions wherever in the world.
Will the Performance of Foreign Currency Market Get Better through Cryptocurrencies?
Some believe that comparing and creating every kind of communication between cryptocurrencies and the market of foreign currencies is a mistake. However, some follow another idea and believe that there are some similarities between these two. For example, there is a supply and demand mechanism in both markets (i.e., market of foreign currencies and currencies). Among other similarities of this market is the price volatilities both currencies and foreign currencies experience. As it was pointed out, there are some differences too. For example, in the market of foreign currency, many players are among institutes and big companies, but about Bitcoin and its peers, the condition is not the same. A large and important part of activities of cryptocurrencies is followed up in the world of retails, and there is no place for big players such as companies.
In addition, the world of cryptocurrencies is decentralized, and there is no chance of common tampering with, fraud or scam; therefore, it surpasses the markets of foreign currencies. The other point which should be told about cryptocurrencies is that there is currently a limited number of cryptocurrencies like Bitcoin in the world and it is not a demand algorithm like that of markets of foreign currencies. Anyway, cryptocurrencies have come to the world of economy, communications, and financial affairs as a totally new tool.
One of the most important points you should know about cryptocurrencies is that they are astonishingly capable of making fast and cheap financial communications and transactions. When the people are able to enter trades in a peer-to-peer manner, the speed and quality of the trades get higher. In the market of cryptocurrencies, on the contrary to the markets of foreign currencies, there aren’t many middlemen or agents, and as a result, the cost of trades will decrease strongly. In fact, there is no need to pay fees and charges related to middleman.
All in all, it seems that the market of cryptocurrencies can dramatically change the field of economy. Despite fantastic and unique features such as speed and accuracy of and data registration and exchange in Blockchain-based networks and infrastructures in which cryptocurrencies work, there will consider the possibility of making a dynamic and more productive system with cryptocurrencies in financial and monetary markets.
What Is the Relationship Between Theories as well as paradigms of the World of Economy and Cryptocurrencies?
According to the definition of currency offered by the Webster dictionary, the currency is a tool to trade and public use. So cryptocurrencies are listed in this traditional category. If you are familiar with the world of economy, you surely know that there are specific rules about pricing and providing services and products in the rational market. Various factors influence these issues; therefore, the value of the currency is under the effect of the above cases and effective factors on them. Throughout history, things, precious metals, bills, and different forms of financial trades have entered the world of economy. It seems that Bitcoin and other cryptocurrencies are following the route of currency evolution in the world of economy. Considering the fact that the features of cryptocurrencies are consistent with the definition of currency, we should consider them an evolutionary sequence of currencies. However, making communication between economic theories and cryptocurrencies is a little difficult. You might notice a kind of inconsistency among these sentences, but we should state that featuring all the specialties of currencies in general, cryptocurrencies are hardly excused in case of old economic matters due to the nature they have. For example, one of the cases which cause difficulty in defining and accommodating every kind of communication between cryptocurrencies and economic theories is that cryptocurrencies are unknown among the public.
Cryptocurrencies are designed and generated with a complex technology, and except few numbers of elite, engineers and experts who follow up the process of their life and production cycle well and carefully and are informed about them, the common people are alienated from it. It is clear that the people are not drawn to a product or phenomenon when they are unaware of it. Now think, who would like to get engaged in the game of different cryptocurrencies, start trading them without knowing them. Such a condition greatly influences the process of supply and demand of cryptocurrencies like Bitcoin; hence, although cryptocurrencies generally have the features of currencies, the process of their behavior and movement in their maturity cycle is a little different from traditional currencies. As a result, their interpretation with old theories is a little difficult.
Is Evaluating the Maturity of Cryptocurrency Infrastructures Currently Measurable?
Like any other phenomenon, cryptocurrencies have metrics and criteria to assess their status in the market. Evaluating these new currencies is possible through different methods. For example, among excellent metrics which can measure the health of cryptocurrency-based projects are elements like the users’ degree of activity, the behavior of network developers and the market maturity. With receiving available data on Blockchain and analyzing them at two internal levels of each project and investigating the position of its data on the public and general network, evaluating performance and behavior of cryptocurrency infrastructures will be possible.
By assessing the users’ activity, we mean investigating the behavior of different people and companies about a specific cryptocurrency and their activity is assessed in relationship with the mentioned cryptocurrency. This evaluation is conducted through analyzing activities in a special part of Blockchain. Then various digital wallets are evaluated carefully in order to identify and assess the number of users, conducted exchanges in the network, examining digital contracts and other activities done on Blockchain and for a special cryptocurrency.
The other element which is investigated as the metric to evaluate cryptocurrencies and their infrastructures is the developers’ behavior. This option, too, addresses investigating and evaluating the level and efficiency of the developers’ performance in Blockchain network and assesses cases such as codes changes, codes improvement and the degree of the users’ participation in different Blockchain projects which has been along with the development by the developers.
In order to assess the maturity of the market of cryptocurrencies, factors such as money and supply are addressed. Investigating the degree of stability of supply and money in different parts of Blockchain and various cryptocurrencies can offer a good view about the maturity of that cryptocurrency.
What Is the Approach of Different Governments toward Cryptocurrencies?
Despite the growth of cryptocurrencies in the short time of their advent, the world has not trusted them yet. The banks and institutes have been terrified by the decentralized network, which doesn’t have any middleman and know them as a threat for themselves. In the best condition, they intend to start cooperating with active projects in the world of Blockchain and cryptocurrencies in order to keep themselves in competition. Different governments have shown different reactions knowing that the cryptocurrencies cannot be ignored. For example, the U.S. government has well understood that new phenomena cannot be withstood through sanctions and bans, so they believe in using cryptocurrencies, but they have prioritized fully-fledged investigation of these cryptocurrencies and think that there is no place of any risk in this regard.
Also, Europe suffers from the same suspicions the Americans have about Blockchain and cryptocurrencies; the only difference is that the degree of pragmatism in the Europeans are much lower than that of Americans and they have many doubts about the phenomenon of cryptocurrencies.
There are some prohibitions in using cryptocurrencies in countries like China and Russia. These limitations on the part of the above countries are imposed despite the fact that they know well that cryptocurrencies can be the savior in many economic problems and challenges. Of course, it should be pointed out that the relationship of Russia and China with cryptocurrencies doesn’t enjoy enough transparency, and it can be likened to a relationship full of loves and hates.
Generally, cryptocurrencies are going ahead in the route of growth and maturity with an outstanding speed, and it is expected that in the next years, they will greatly influence the economy and the people’s lives. What is obvious is their importance and the fact that they cannot be ignored.
Dr. Pooyan Ghamari
For the whole article, check this link: