By Sharon Verhoeks
Cryptocurrency is gaining its popularity fast. The digital asset is a new form of payment and threatens the current monetary system. Around 4000 alternative currencies already emerged based on their decentralised ancestor, keeping the punk soul alive. Are we on the eve of a monetary revolution?
The current monetary system, which is based on the fiduciary idea that we are able to purchase services and goods with money, is at stake. The American Federal Reserve has printed almost nine trillion American dollars since the pandemic started. As the American dollar is still perceived as the most important currency to date, this is worrisome development for the entire world. Meanwhile, Bitcoin has reached its all-time high and cryptocurrency is gaining common ground.
The only way we could create a reliable monetary system is when it is not possible to create more money than there actually is. Most cryptocurrencies can be mined, but up to a certain extent. This means that when for example; the last Bitcoin is mined, you will not be able to mine another one. They can not be printed or reproduced, but they can be destroyed which would raise the value of the coin, a reverse inflation. But what is a cryptocurrency exactly?
A cryptocurrency is a digital asset designed to work as a medium of exchange. The individual coin ownership records are stored in a ledger existing in a form of computer-based database using strong cryptography to secure transaction records. It is stored this way to control the creation of additional coins and to verify the transfer of coin ownership. It does not exist in physical form and is not issued by a central authority like a bank and therefore operates like a decentralised network. Each cryptocurrency works through distributed ledger technology, typically a blockchain, that serves as a public financial transaction database. This can be compared to an old-school balance sheet.
Laszlo Hanyecz went to the Bitcoin Talk forum and paid a user 10,000 Bitcoin for two Papa John’s large pizzas. That was in 2010. It is a common joke in the cryptocurrency community and is referred to as ‘The most expensive pizza ever made’. At the time of his purchase, 10,000 Bitcoin was worth around 40 American dollars. Right now, those two pizzas are worth around 582 million American dollars. As cryptocurrency is gaining common ground, it could become an interesting addition to our current monetary system or even replace it fully.
Bitcoin, first released as open-source software in 2009, is the first decentralised cryptocurrency. It wasn’t the first form of electronic money: Bitcoin can find its ancestor in the 1983 created anonymous cryptographic electronic money called Ecash. It was conceived by American cryptographer David Chaum who was the first to mix cryptography with the concept of money. The combination with cryptography allowed the digital currency to be untraceable by the issuing bank, the government or any third party.
This concept was implemented in Bitcoin by its anonymous creator who uses the alias Satoshi Nakomoto. A Bitcoin is created as a reward for a process known as mining. This process can be compared to solving calculations on an extreme high-speed using computer performance. Bitcoin can be exchanged for other currencies, products, and services, but the value of the coins is volatile and depends on the same structure as stocks, supply and demand. After the creation, several other coins were conceived. These are called altcoins, for they are an alternative to Bitcoin. Today, the total crypto market consists of around 4000 different coins with a total market capacity of 2 Trillion American dollars.
The potential of these currencies can be found in their use cases. Bitcoin, created as an anarchist symbol against central banks, finds its opponents in coins like Ripple. This is a coin created to redesign the way we transfer different currencies or commodities, or easier ways to transfer money around the world like Telcoin or Stellar. Innovation is no stranger to the market shows Polkadot, a currency conceived to create parachains, connecting blockchains to each other.
As these currencies remain decentralised networks, they keep the punk soul of Bitcoin alive. Harold Berg, active crypto investor since 2013, believes in a future of a decentralised monetary system based on cryptocurrency: “The idea is that, with a decentralised monetary system, the power flows back to the people. Decentralised networks take the power away from central banks and could be used to remove layers from authoritarian systems even more in the future.”
The question is: how far away is this future? Institutions like Goldman Sachs, who told their customers to stay ‘far away from Bitcoin’ are currently investing in the market. Ripple is generating Central Bank Digital Currencies based on the Ripple ledger. This could mean that mainstream use is just around the corner and the revolution might be closer than we think.