Digital currencies have been around for a little while now, and people have been considering what their future might be. It is important to understand what digital currencies are, and they are generally categorised into two types. These are generally controlled by their own developers, and usually used among members of a specific virtual community that is online. The second type is called cryptocurrencies. These are defined by being a type of digital token that relies on cryptography for chaining together digital signatures of token transfers, peer-to-peer networking and decentralization.
According to the Digital Economy forum, there are more than 740 types of cryptocurrencies. Of these, as many as 26 are thought to have market capitalisation to a level of more than $10 million. Bitcoin is arguably the most well known of these crypto currencies. The currency is considered to be something akin to “digital gold” since there is a limited supply of this online and only a certain amount may be mined each year. Special software must be used to mine, and this software is known as blockchain technology. This has implications for society.
What are the implications of blockchain for Society?
The implications for society are quite considerable. The reason for this is because digital currencies are not centralised. Given that they are decentralised, this means that governments would no longer have control over the economy. Some think this could be beneficial because there would be a more authentic type of free market in operation. This would mean that the currencies would simply exchange at the rate of the market, and there would be no intervention in this process by government – hence the lack of governmental control over this process if bitcoin were to become the currency of society.
Another difference between cryptocurrencies and regular currency is that if it were to be adopted by society it would be secure and private if used. There would be the possibility of remaining anonymous if using Bitcoin. This is because it would not be possible to track use in the same way that credit card or other transactions may be tracked. Governments and the civic society, have concerns about these types of developments, particularly related to issues such as money laundering and crime.
There are though, clear benefits for the world overall at the same time. Cryptocurrencies would have the potential to disrupt positively established industries such as healthcare, finance, creative industries and many others. They could also be used on emerging economies, to solve some important problems still prevalent in our world, such as the financial inclusion of billions of unbanked people.
Another significant benefit of such a system would be that the value is not pegged to a particular country. For example, if in the United Kingdom, the value would not be pegged to the United Kingdom, this would mean that the currency would not “drop” if political shocks hit the market (such as that of the vote for Brexit in the referendum in June 2016). Instead the currency would be much less subject to volatility related to being in certain countries.
The following video, done for the Youtube channel of the Digital Economy Forum, explains what would happen if a country would issue a cryptocurrency
What are Some of the Risks?
Moving on from the advantages, there are most definitely also risks associated with adopting decentralised currencies such as Bitcoin. We have already considered the problems associated with money laundering, and this would be particularly problematic for money between different countries, since there would be no government regulation. A second problem is that though there would be no pegging to a particular country, the currency could still be quite volatile to fluctuations, given that nobody would be overseeing it. Thus, there is the potential for inherent volatility.
Third, people that create digital currencies do not comply to financial institution rules. While this may not necessarily automatically be considered a bad thing, it does mean that they can create their own rules. This might not be a good thing in certain circumstances. Additionally, as already hinted at the lack of regulation and oversight of the currency could lead to problems occurring, for which no one would be accountable.
Even though the risks need to be assessed and tackled, cryptocurrencies are gaining momentum and widespread attention. Entrepreneurs and innovators all over the world, are building blockchain-based applications and exploring the potential of digital currencies in all kinds of ways. And this is just the beginning. Don Tapscott, a famous author and the founder of the Blockchain Research Institute, firmly believes how digital currencies, and particularly blockchain, could revolutionise the world economy in a positive way. The future will let us know if the impact of digital currencies, will be similar to the one of the Internet.
Maria Fonseca is the Editor and Infographic Artist for IntelligentHQ. She is also a thought leader writing about social innovation, sharing economy, social business, and the commons. Aside her work for IntelligentHQ, Maria Fonseca is a visual artist and filmmaker that has exhibited widely in international events such as Manifesta 5, Sao Paulo Biennial, Photo Espana, Moderna Museet in Stockholm, Joshibi University and many others. She concluded her PhD on essayistic filmmaking , taken at University of Westminster in London and is preparing her post doc that will explore the links between creativity and the sharing economy.