Before now, the financial system was a highly regulated one where mediators had a lot of power. Individuals globally were subjected to the centralized nature of the financial sector. However, with the introduction of digital currencies, all of these have changed. Cryptocurrencies, through blockchain technology, have created a decentralized monetary system that doesn’t require the activities of third parties.
Before we delve into how cryptocurrency affects the global economy, it is necessary to go down history lane. Many years ago, when cryptocurrency was introduced, many people doubted this innovation’s prospects to the financial world. Today, all that has changed as we have seen many investors globally invest heavily in these coins.
Also, the bank system is beginning to appreciate the place of blockchain to create a more transparent and secure financial sector. However, many are still trying to grasp the difference between cryptocurrencies and other regular currencies.
What Are The Differences Between Cryptocurrencies and Regular Currencies?
If all you know about cryptocurrencies is the virtual means of trading them, you don’t have a holistic knowledge of the cryptocurrency market. Significant differences between virtual currencies and regular currencies include:
Cryptocurrencies are highly volatile.
Unlike regular currencies, cryptocurrencies are highly volatile. You can invest in cryptocurrency today, and by tomorrow the prices may have gone up or fallen. This volatility can be both risky and profitable depending on how well you understand the working of the cryptocurrency market.
Regular currencies are stored in physical wallets.
The mode of storing virtual currencies like Bitcoin and Dogecoin is different from that of regular currencies. Regular currencies are stored in a physical wallet, while digital currencies are stored in a virtual wallet. If you want to invest in cryptocurrency, you will need to get a digital wallet with an exchange platform. So whenever you buy Dogecoin, for example, you can have it stored in the wallet till you want to trade for another coin or sell it to other traders.
Cryptocurrencies don’t have a definite owner.
You can quickly identify where regular currencies flow from when you see them. When you see a dollar note, you can tell it is coming from the United States. However, cryptocurrencies do not have a definite owner. According to reports, even the name Satoshi Nakomoto, popularly regarded as the brain behind Bitcoin, is an alias.
Major Ways Cryptocurrency Is Affecting the Global Economy
Whether it is Bitcoin, Litecoin, or Dogecoin, it is clear that digital currencies are the future of money, and a new currency system might be on the horizon soon. For many years, there has been the desire to get a global currency that aids cross-border transactions. Interestingly, we have over 11,000 such virtual currencies globally today.
However, financial players are worried about the high volatility of these currencies and their impact on social, economic, and political activities. Though they are attractive to the financial world globally, the fluctuating nature of prices may hinder them from being a generally acceptable means of payment.
The absence of regulation is also another challenge for cryptocurrency transactions. One of the major features of digital currencies is that there are no regulations that protect traders. While this has allowed for free trading in the cryptocurrency market, the issue of scams continues to thrive. In addition, a single post can affect the price of the cryptocurrency, like we continue to see with Dogecoin.
To address these regulation issues, several governments globally have attempted to ban or restrict the activities of cryptocurrency traders. An excellent example of these restrictions is seen in the recent ban on Bitcoin and other cryptocurrency-related activities in China.
On the positive side, it is predicted that more currencies will go into electronic savings in the coming years. With more investors showing interest in different coins like Bitcoin, Ethereum, and Dogecoin, their prices are likely to rise higher than they are now in the future.
Every sector globally appreciates the prospects cryptocurrencies offer. Others are leveraging the many opportunities of blockchain technology to transform their business. From the music and entertainment industry, sports and art world to the business world, everyone seems to be investing in one cryptocurrency or the other. Payments for products and services can be made directly from mobile devices, which has facilitated trade globally.
Though the issue of regulation is still one to be considered when discussing the impact of cryptocurrency on the global economy, regulators are yet to take a uniform stand. So, while the Chinese government may have banned crypto-related activities, adopting cryptocurrency as a legal tender in El-Salvador is proof that regulators are not taking a unified stand.