A major topic of discussion on the internet today is blockchain technology and cryptocurrency. It is arguably currently one of the most important trending topics of the modern era, just like Tamagotchi's were in the '90s. Cryptocurrency, as controversial as it is, is monumentally widespread and influences a range of economic elements. Because of this reason, it is hard to go a day without hearing about it on the news.
As with all things, there are two different theories of thought which project, in their own views, the effect of cryptocurrency on the economy as a whole. Many argue that cryptocurrency is in a bubble of its own and does not have the potential to affect the economy as it works alongside it without directly affecting it. The opposing argument to this is that cryptocurrency has the potential to disrupt the entire global economy, slowly diminishing it. And so the argument stands, is cryptocurrency a threat to the economy or does it open the door to new possibilities?
Truth be told, ten years ago, we didn't know what Bitcoin or Cryptocurrency even was. The concept of mining currency and having blockchain accounts was so far fetched that we couldn't imagine implementing blockchain into an array of different fields, but guess what it's happening. As a result, yes, cryptocurrencies are affecting the global economy and that too in many different ways.
Image Source: Seeking Alpha
Challenging the USD
The global economy primarily relies on the US dollar and is the reserve currency for it. Globally, every mainstream financial organisation functions in the US market, according to the Dollar. This explains why issues in the US market have a knock-on global effect like the 2008 financial crisis. Due to the vastness of the global economy, it is uniquely interconnected in an unprecedented way. The USD sits at the core of this market and remains the number one reason why the United States can maintain its dominance in the world. However, the emergence of cryptocurrencies is massively disrupting the US's position.
As the number of cryptocurrencies like Bitcoin increase, financial transactions are considerably becoming decentralised. These decentralised transactions have no recourse to the US dollar and have changed the dynamics of several operations. These include international trade, the impact of economic sanctions, diplomacy and foreign relations. The clear indication here is that the US dollar is losing the battle against cryptocurrencies concerning transactions. Over the years, there have been attempts to de-dollarize the global economy and Bitcoin has done just that, thus successfully altering the global economy.
Image Source: CoinMarketCap
Cutting out the middle-man
The mainstream financial ecosystem relies on transactions to be carried out through clearinghouses such as the Society for World Interbank Financial Telecommunications (SWIFT) as a form of protection and secure communications. No international money transfer can happen outside of the SWIFT network, and transitions can take days to process along with transaction fees.
This is very different for cryptocurrencies as they cut out the middle man as the need to authorise and authenticate transitions is no longer required. This reduces the need for organisations like SWIFT and offers adequately lower transaction fees, anonymity and privacy along with faster transaction processing times. Cutting out the middle man means cryptocurrencies are disrupting the global payment system. Preventing money laundering and illicit trade is even harder to do in with cryptocurrencies. Transactions are much harder to trace, and other financial institutions have no control over the crypto operations.
Simplifying the Crowdfunding Process
Initial Coin Offerings (ICO's) in 2017 became the leading crowdfunding method of technology-based-start-ups. This meant that entrepreneurs no longer needed to spend time convincing banks and investors to lend them capital to start their businesses. The effect of this has seen a wide variety of successful technology-based start-ups emerge. In the ICO platform, projects sell their underlying crypto tokens in exchange for Bitcoin or other cryptocurrencies.
Due to ICO's popularity and a spike in use, it has become one of the main focuses of government agencies around the world. So much so that some countries like China have gone to the extent of banning it due to the economic disruption it was causing.
As explored above, there are clear signs of how cryptocurrencies are disrupting and affecting the global economy. Some may fear the change that crypto is bringing to the economy, but the truth is change is not always necessarily negative. Cryptocurrencies are providing us with new ways of working and delivering features and tools which simplify our lives.