The Impact Cryptocurrency And Blockchain Will Have On The Economy
BY NATHAN YOUNG ON 06/26/2018 AT 3:00 PM
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Throughout time, events in our past have shaped and molded the future. The invention of the light bulb, the first moon landing, and more recently the Internet. Currently, we are living through a technology expansion and with that has come arguably one of the most disruptive products to finance, and that is cryptocurrencies and the use of blockchain technology.
Popularized by Bitcoin, cryptocurrencies utilize the blockchain to process transactions within a decentralized system. Currently when we transact, money flows through several entities before reaching the final destination. With blockchain technology, this allows for peer-to-peer transactions that are documented by others within the system.
In the past, people would transact via cash or check. With the expansion of technology in the last few decades, transactions have become quicker and more efficient. Debit and credit cards increased efficiency and today, many are simply using the chip within their phone, ditching plastic all together.
Investing has also changed with the speed of order executions and the accessibility to market information. The blockchain is changing the way we transact today because it has greater security than current methods, along with the vast applications beyond finance. Couple that with a decentralized cryptocurrency, the finance world is seeing a healthy disruption.
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The adoption of blockchain technology and cryptocurrencies continues to move at a gradual pace. A large pain point consumers face is fluctuating values. When you hold a physical dollar, the purchasing power of that dollar is not going to change much, if at all, from day to day. However, cryptocurrencies such as Bitcoin change minute-to-minute, causing individuals to fear loss of value.
With the addition of new investment products, exchanges, and confidence growth, people are beginning to accept that cryptocurrencies are staying. Evidence of this adoption will manifest as more and more businesses accept Bitcoin and other cryptocurrencies as a form of payment.
Looking a step further, the global adoption of blockchain technology and cryptocurrencies could take even longer. Three variables are at large with the first being swift value changes as previously mentioned. The second is governmental interference and the lack of acceptance. Unfortunately, Bitcoin has the stigma of being used in less than ethical transactions. Not only that, governmental agencies are having a difficult time categorizing what exactly cryptocurrencies are and how they can be taxed appropriately.
Despite the slow down due to government interference, many countries have accepted the fact this is mainstream and are willing to work with the technology. The main issues now include money laundering and increasing the security and regulation of exchanges. However, the issue with this lies in the idea that cryptocurrencies are decentralized and not to be controlled by any one entity.
Regardless of the infancy state cryptocurrencies and blockchain are currently in, these technologies will be adopted and proof is everywhere. Goldman Sachs began testing blockchain technology in transacting trades, finding it worked efficiently with no errors. Also, the medical industry is beginning to use it in transmitting sensitive patient information and tracking various medical records.
As for the third variable, the process of global adoption is going to be slow — our current financial infrastructure is incapable of handling large volumes. Recently, the Bank for International Settlements came out with a [24-page document](file:///Users/nyoung/Downloads/Bank of International Settlements - Bitcoin Paper.pdf) detailing how our current system is unprepared. According to a Bloomberg article, “As the size of so many ledgers swell, the researchers found, it would eventually overwhelm everything from individual smartphones to servers”. With any adoption, especially ones of this magnitude, upgrading the infrastructure will take time.
Once there is a solid and secure infrastructure in place, individuals will begin seeing the impacts and benefits of using blockchain technology and cryptocurrencies. First, with the removal of middlemen, people will begin seeing a reduction in fees. Peer-to-peer transactions will bypass entities such as the Fed, and instead go directly to the intended party.
Secondly, the security of transactions will be greater than current methods. However, storage of cryptocurrencies is still critical. Current technologies are safer, yes, but the storage of cryptocurrenices is up to the user. If your Bitcoins are stored on an unsafe hard drive, hackers can still have easy access to your Bitcoins and steal them.
Lastly, it will bring world economies closer together, transacting using once global currency. Currently, when business is done internationally, people account for currency costs. For example, US Dollars are worth less in the European Union, leading to deals costing more for US based companies. However, with one global currency, this issue would diminish, allowing for a seamless flow of funds.
The two topics currently being explored with blockchain and cryptocurrencies include the adoptability and implications of being used. Blockchain technology is already being adopted by multiple entities within our economy. Offering a more secure way of transacting and transmitting data in our current ecosystem is a huge plus. The cryptocurrency side of the equation is going to take some time.
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Adoption is slowly taking place and the implementation of the cryptocurrency is following closely. Until there is stabilization in value, the masses will continue using cryptocurrencies as an investment vehicle. As exchanges begin consolidating and people utilize it for spending rather than trading, we will see a price stabilization occur. Once that happens, businesses and consumers will have increased confidence in cryptocurrencies.
The true impact blockchain and cyptocurrency growth will have on our economy is yet to be seen. However, we know it is going to be substantial and several years down the road, we’ll look back on this similar to the invention of the light bulb as once of the greatest disruptions in the global finance ecosystem.
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