Digital currency: The good, the bad and the ugly
In just the same way the mobile phone, email and the Internet have changed our way of life, cryptocurrency has the potential to do the same.
Some call cryptocurrency the "digital gold rush." Digital coins like Bitcoin and TRON have captivated thousands around the world to invest in this digital revolution. Although sceptics have their concerns, there's no denying cryptocurrency’s popularity, viability and everyday usability is steadily rising.
Think back to the days before the reign of the mobile phone. Remember the process of letting family, friends and colleagues know if you were running late? You first had to find a phone booth, park the car, scroll through a massive phone book to find a number, scrimmage around for loose change and finally, hope the person we were trying to reach had access to a landline as well. While it was all we knew at the time, looking back it clearly feels like a terribly antiquated and unnecessarily time-consuming process.
What about life before email or the Internet? These modern-day platforms have offered us conveniences we now expect every moment of the day. Without email and the internet, we would lose communication efficiency to which we have become accustomed. As a society, we have digitised the way we speak, write, buy goods and interact with one another. Would you want to go back to the days of letter writing or library research?
In just the same way the mobile phone, email and the Internet have changed our way of life, cryptocurrency has the potential to do the same, by transforming the entire financial industry and every transaction within it.
The Good
The majority of financial companies including banks are intermediary services or brokers. A bank is, at its core, a broker between people who have money (deposits) and people who need money (loans). This allows people who have money (debtors) to transfer to people who need money (creditors) for delivered services or goods.
Across the industry, there is still a lot of human interaction and manual labour to complete transactions - leaving significant room for digitisation and automation. The four-eyes principle is written in every compliance manual of financial companies and banks, requiring at least two-person approval and slowing the process even more. While caution is prudent in areas of finances, it also creates a great logjam in an era where digital immediacy has become the norm.
With digital coins the transaction process is completely automated and in need of no human intervention from processing to completion, subsequently eliminating human error. Structured as a peer-to-peer system, digital currency built on blockchain technology is a permissionless, global network – an alternative way to store value.
As blockchain allows for such uninterrupted transactions, processes and efficiency can skyrocket. Digital financial transactions built on blockchain have the potential to make traditional banking practices obsolete. What’s more, blockchain will open the doors to additional applications in the future - not just financial transactions but paper ones, as well as a host of other things.
In addition to speed, blockchain-based cryptocurrency ensures financial transactions are highly secure. They are guarded by NSA created cryptography, making it nearly impossible for any outside interception between transfers and preventing anyone other than the owner of the digital wallet to initiate and confirm them. Although still a new concept, cryptocurrency offers security unlike any other formal or informal financial transactions before it, appealing to many consumers.
The Bad
Because blockchain and digital coins have the potential to replace people in most aspects of the transaction process, millions of jobs could be in jeopardy with the arrival of such technology. Innovation always comes at a cost, and some worry these costs might be catastrophic. Bank tellers alone account for more than 500,000 jobs in the banking and financial industry. Since their day-to-day labour consists of processing financial transactions, they are the first to lose employment when the tide of innovation rises.
As this innovation rears its head, CEOs and advisory boards have a responsibility to adopt new changes and technology. Sadly, they are at risk of implementing these changes too slowly, and in turn, their organisations end up gambling with the livelihood of millions of families. While other industries and platforms work at a nearly instantaneous pace, at the same time and with the same access to technology, banks still need three or more days to process foreign transactions. This timeline doesn’t bode well as automation and blockchain currencies take over.
Another concern is that as cryptocurrency is relatively new, it is not heavily regulated. Many people struggle to understand and grasp the concept of blockchain and how it allows digital coins like Bitcoin to be distributed securely without a middleman. The whole idea can be intimidating, and breeches - although rare compared to other platforms - are still possible.
The Ugly
Digital coins are, of course, not a perfect solution for the financial industry. Many alternative coins are unlikely the next Bitcoin, and there’s a chance most of them won’t stand the test of time. As with any platform, the old fade away and giants like Google, Amazon, Facebook, etc. take their place. It’s a game of thrones for these alternatives to Bitcoin. It’s unclear who will win and who will face their demise.
As cryptocurrency startups are born, Initial Coin Offerings (ICOs) come in handy in raising money to fund the new project. However, with the absence of legal guidelines in their operation, many ICOs are scams. It’s difficult to determine which ICOs are productive and which are money-grab schemes. The presence of scammers in this space makes finding investors an interesting challenge, as the wealthy and experienced won’t be likely to contribute to such a new, abstract field.
When using digital coins in a transaction it is a final decision – transactions are irreversible. If currency is accidentally transferred to the wrong person or in the wrong amount, there is no real way to recover the same currency. Additionally, since the currency is stored within certain accounts and devices, if a user were to forget their login details or lose a device, it would be essentially the same as losing a physical wallet.
Although there are several sides to cryptocurrency and digital coins – the good, the bad and the ugly – there are also astounding opportunities that await us in an even more digitised future. Companies and consumers will have a whole new method of buying, selling, lending and borrowing available to them.
As the financial industry adopts innovative technologies that allow blockchain compatibility and efficiency, our world will become more familiar with the concept, and we will see a dramatic shift in the way we transfer money from hand to hand.
Waseem Sadiq, CEO, Tradebits
Image Credit: David McBee / Pexels