Ever since they entered public attention, cryptocurrencies have become a hot topic of debate. Some have praised the newly emerged digital currencies for their decentralized nature, transparency, reliability and the investment opportunities they provide. Others have criticized them for their high volatility, lack of regulation and limited real-world utility. Either way, digital currencies have garnered a lot of attention, both positive and negative, from all corners of the world.
It’s highly unlikely there will ever be a consensus on cryptos. But while opinions on utility, efficiency, value and other crypto-related aspects may remain divided, we can all agree on one thing – cryptocurrencies have been highly influential for almost a decade, and that’s not going to change in the future. But to what extent can they impact our lives or the global scene? That’s a difficult question to answer, but one definitely worth exploring.
Getting familiarized with crypto
Almost everyone has heard about cryptocurrencies and the benefits they may provide, but very few people actually know what’s behind the concept. So, for those of you who still struggle to grasp what digital assets are all about, here’s a short introduction.
Cryptocurrencies, also known as digital currencies or virtual money, refer to a distinct class of digital assets that provide an alternative to fiat money. Unlike traditional currencies, crypto doesn’t exist in physical form. They are completely virtual units that are stored on a peer-to-peer network and use cryptography to make up an immutable chain of transactions called the blockchain.
Cryptos serve as a medium of exchange or store of value that is not dependent on a central authority to verify and validate transactions. Instead, they rely on nodes – the stakeholders’ devices that run the blockchain’s software – to check and confirm the legitimacy of each transaction. This consensus mechanism ensures complete decentralization and makes it almost impossible to counterfeit data or double-spend coins.
Solving real-world problems
For some, cryptocurrencies might look like nothing more than a thought-provoking innovation that adds an interesting nuance to the global financial scene. However, these digital assets are much more than mere curiosity. As a decentralized digital medium of exchange, cryptos can provide viable solutions to a host of problems faced by people all across the world.
The traditional financial system is riddled with flaws and shortcomings in the form of inflation, unfair policies, inefficient regulations, inequalities, and so on. Bitcoin and the altcoin pack have the ability to fix these flaws and fill in the gaps in the system. For millions of unbanked people in developing countries like Venezuela, El Salvador, or Nigeria, crypto represents a one-of-a-kind opportunity to finally gain access to financial products and services and live a normal life, ensuring global financial inclusion.
Many argue that the market’s volatility represents a barrier to trust and the large-scale adoption of crypto. But even though Bitcoin price has experienced constant fluctuations over the years, just as all other coins have, these assets have maintained a relative value over the course of time, so price swings are not that big of an issue, especially in countries where people face much bigger economical problems.
High inflation is another aspect that cryptos address. In countries like Argentina, Zimbabwe or Sudan, the rising inflation increases the cost of living and directly affects the low-income populations. Until now, the only solution to counter the effects of inflation was to invest in foreign currencies. But now, people in countries with struggling economies can also use cryptos as an efficient store of value.
Therefore, cryptocurrencies have the power to limit the negative impact that corrupt political systems have on the economy and put an end to the dominance of greedy banks and discriminating financial institutions.
Environmental impact
There’s no denying that cryptocurrencies provide a wide range of benefits to consumers and economies around the world, but unfortunately, they’re far from perfect. One of the issues that have been widely discussed lately has to do with the negative impact that many cryptos seem to have on the environment.
In order to mint new coins and validate transactions, most crypto projects, including Bitcoin, require a process called mining. Mining is an extremely complex activity that involves solving complicated cryptographic equations with the use of software. That’s all well and good, except for the fact that this process is also highly energy intensive. For example, Bitcoin’s proof-of-work mechanism leads to an estimated annual consumption of 144.63 TWh (terawatt-hours). According to the latest evaluations, Ethereum, the second-largest crypto on the market, registered an annual use of approximately 62.77 terawatt-hours.
However, things seem to be moving in the right direction, as many developers have taken notice of the issue and have already started implementing changes to make sure their crypto projects are more environmentally-friendly. Ethereum’s most recent upgrade, also known as the Merge, saw the network switch from the former proof-of-work to a proof-of-stake model to validate transactions, which is said to reduce the blockchain’s energy usage by 99 per cent.
Government regulations
Due to rising prices and their high earning potential, cryptocurrencies have become an attractive investment opportunity in recent years, with a large number of investors using digital assets as a way to diversify their portfolios. What’s more, an increasing number of companies from different industries started accepting crypto payments from customers.
The continuous expansion of the crypto ecosystem triggered different responses from world governments. In general, most countries were extremely reluctant to accept cryptos as part of their financial system, but since the phenomenon can no longer be ignored, they’ve now adopted a more permissive stance. Many governments are currently looking into embracing cryptocurrencies, but that can only happen after setting up clear standards and regulations in this respect. Some jurisdictions, like China, India and Thailand, are even considering issuing their own digital currencies.
At the moment, cryptocurrencies represent a market that’s still in its infancy, and there are many aspects that need to be clarified in order to reach their full potential. However, if cryptos continue to evolve as rapidly as they have so far, chances are their global impact will increase exponentially in the years to come.
