Cryptocurrency: Revolution or Speculation
We first need to distinguish between cryptocurrencies and virtual currencies. While both are digital means of exchange, cryptocurrencies are based on the encryption of information, protecting the identity of users of the cryptocurrency by means of a system. With current computing capabilities that is very difficult to crack. Virtual currencies do not by itself ensure decentralisation of their control or encryption.
Making the existence of a central body impracticable, supporters of cryptocurrencies base their value on privacy (i.e. the fact that the information is encrypted) and on the reduction in the number of intermediaries involved in executing a transaction.
Others point to technological advantages. For example the added value of cryptocurrencies is said to come from their efficiency. sending and receiving large sums of money in the traditional system, becomes a difficult task, whereas with cryptocurrencies it can be done quickly, cheaply, with fewer intermediaries and while also protecting one’s identity. By the excessive consumption of energy involved and the long settlement times these advantages are partly offset.
There could also be so-called financial advantages. Bitcoin for example is limited by means of its algorithm to 21 million Bitcoins in circulation while the money supply in conventional currencies grows, avoiding monetary inflation and loss of purchasing power. It could even be a deflationary currency, since the money supply base could be reduced due to the possibility of losing access to cryptocurrencies (because of the strength of encryption).
These advantages relate to one of the main criticisms: Precisely due to their decentralisation the difficulty of regulating them. Although cryptocurrencies protect identity, they also allow illicit trading. Since it would involve the emergence of a financial system based on decentralised individual transactions, with consequences that are difficult to foresee and with tax implications too (regarding money laundering, among other things), this is a challenge for governments and the current financial system,
Why is it only now that cryptocurrency fever has broken out? if this technology has been available since 2009. There are two answers: the first, that it is nothing but a speculative bubble; the second, that society has entered the next phase of adaptation.
The main attraction of cryptocurrencies is speculative, is what the bubble interpretation asserts since their profitability depends solely on more people acquiring them. Furthermore, it is argued that these are commodities but not currencies, since they do not perform the functions of money: deposit of value, means of exchange and unit of account. It seems that they are still far from being institutionalised as money, or at least in accordance with the traditional definition of money due to the low level of adoption of cryptocurrencies in the real economy and their high degree of volatility.
Others argue that cryptocurrencies are reaching the next stage in their adoption by society and that this speculative behaviour forms part of a first phase prior to their institutionalisation. The fever that cryptocurrencies will be widely used in the future as the world becomes more globalised and digitized could be reflecting rising expectations.
There seems to be a certain consensus In any case, that cryptocurrencies are still far removed from the standardisation of conventional regulation, in an embryonic phase, and that they remain highly volatile. For this reason, various other rival cryptocurrencies have arisen, in the wake of Bitcoin, aiming to improve their functioning. The success of cryptocurrencies will depend largely on whether they can demonstrably improve people’s lives and be accepted by the population. Meanwhile, their price will continue to be based on expectations and speculation about the future. Will personal encryption of our money end up forming part of our daily life?