We are all aware of how people used the famous Barter System as the only medium of exchange globally in the medieval ages. As a part of this goods and services were exchanged for goods and services as there was no concept of money across the world. For example, people would trade cereals for pulses or shoes for clothes. As times evolved, the concept of money or fiat currency gradually came into being, where people could earn by performing various kinds of activities, save money, and eventually buy goods and services by paying for them. This is how the traditional financial system started coming into the mainstream. Since then, this system has gone through many iterations and developed into what we know as a global economy today.
One important question to ask here is – Who decides the value of money? Interestingly, centralized governments in collaboration with regulated financial organizations like banks decide the supply and value of currencies or money (fiat currency). Banks also serve the purpose of storing the citizens’ money and also enable people to invest in the financial markets through various financial instruments. All of these are highly centralized and banks exercise majority control over all the financial activities that anyone wishes to perform across the world. This is how the overall economic setup has been functioning for a very long time.
As we entered into the first decade of this century, the concept of the internet gradually started coming into the mainstream and was highly supported by the advancement of technology. This made way for various kinds of digital innovations, the most prominent of which turned out to be cryptocurrencies, and ever since, these digital assets have continued to make news in mainstream media across the world.
We are all aware of how certain financial organizations like prominent banks contributed to the 2008 financial crisis that had a massive negative impact on the global economy. This turned out to be a massive turning point and citizens started to question the reliability of such centralized banking organizations. At around the same time, something called ‘Bitcoin’ hit the news and was reportedly discovered by an anonymous entity which claimed to be Satoshi Nakamoto. Bitcoin served as a digital currency, otherwise known as cryptocurrency. It was supposed to be used as a peer-to-peer decentralized payment format. Since then, several other cryptocurrencies have emerged and are used in tandem with blockchain technology for various applications across multiple industries.
What are Cryptocurrencies?
To understand the concept of cryptocurrency, it is important to take a detailed look at how traditional finance works. In traditional finance, centralized organizations like banks control the economy by maintaining a certain supply of money that people can use in the form of loans.
At the same time, banks serve as vehicles that people can use to save or invest money. They get a certain interest rate on their savings. For investment purposes, people invest their money in various financial schemes and banks further invest that money in the financial market to earn profits. A certain percentage of this profit is rolled back to the investor in addition to the initial principal amount.
It is important to note that the investors or citizens do not have any idea or control over this entire process and they solely depend on banks to earn a return on their investment. In most cases, the process works as it is supposed to and people get their money back along with the initial investment.
However, theoretically speaking, citizens have no control over their own money and the risk of loss always remains, as we could witness during the 2008 financial crisis. In this context, cryptocurrencies have the potential to serve as an alternative and empower people to control their finances in a way that is not intrusive and dependent on third parties.
Cryptocurrencies are nothing but digital currencies that circulate over a blockchain framework. Here, the clear differentiator is the fact that the circulation of cryptocurrencies is not controlled by any centralized organization. Instead, the circulation, and hence the supply completely depends on the existing market needs in terms of demand.
So, cryptocurrencies form a digital economy that is completely independent and they help people to restore control over their own finances. For example, cryptocurrencies need not be stored in a centralized organization like a bank as they can be stored within a personal e-wallet which may or may not be overseen by a somewhat centralized cryptocurrency exchange. Hence, people have much more ownership when it comes to saving or investing, as all crypto-related financial activities happen as per the owner’s discretion.
Some of the most popular cryptocurrencies are Bitcoin, Ether, XRP, Bitcoin Cash, etc. However, with the growing acceptance of crypto in the mainstream driven by the openness to new-age technologies, many other promising cryptocurrencies are emerging that offer a lot of utility in real life. One such example is ModiCoin which is a blockchain-based and DeFi-oriented token that aims to optimize how people handle their digital assets.
Build-Up for the Future
Despite all the advantages of adopting cryptocurrencies, one must agree that these digital currencies are yet to arrive into the mainstream on a large scale. Having said that, global organizations and global citizens across the world are gradually acknowledging the benefits of using crypto, and the exponential growth in crypto investments both in personal and institutional finance is a testimony to that claim. So much so, that crypto is promising to trigger an alternative economy if not emerge as a replacement to traditional finance in the near future. As we continue to debate the potential of crypto in the mainstream, it will continue to prove its worth as a modern digital asset that is safe, secure, and scalable.