Cryptocurrencies have, in the past year or so, gripped the imaginations of young and old alike. Its meteoric rise has generated considerable interest around the globe, and most of the interest stems from the incredible gains it has made. But aside from that, why use cryptocurrency? In this article, we want to talk about some of the reasons and benefits of using cryptocurrencies.
Why Use Cryptocurrency?
Let’s look at bitcoin, the most popular cryptocurrency. What is bitcoin? Is it a currency? Is it a medium of exchange? Is it a store of value? Are all of these attributable to bitcoins? If it is a currency and medium of exchange, why should we use bitcoins over the US dollar or Euros? If it is a store of value, why is it better than other investable assets such as gold or real estate?
The first thing we need to understand is that there are no parallels for bitcoin in history. It is the first decentralized digital currency. On top of that, despite its market capitalization, it is still a new concept and a fledgling market. Companies are still developing commercial infrastructure around it.
Also, most of the work being done in the cryptocurrency sector is experimental in the sense that no one really knows where the technology will be ten years from now. It’s like the internet in its heyday. No one knew smartphones were going to come along and fundamentally transform the fabric of our society.
Anyway, let’s not ponder over unchartered territories and let’s get back to the premise of our article, why use cryptocurrencies.
- A Digital Alternative
We live in a world where we communicate and socialize digitally. We consume media on digital platforms and even shop over the internet. In just two decades, the world has transformed in a fundamental way. Despite the paradigm shift, money has yet to adapt to all of these changes.
Yes, our money is digital to some degree. We’ve got online banking, digital payment processor, credit cards, and more. Yet, the basic concept of money has yet to evolve according to the changing dynamics of society. Cryptocurrency is merely a consequence of these societal changes.
Bitcoin and other cryptocurrencies are digital equivalents of conventional money that is aligned with these societal changes. Instead of turning hard currency into digital form, bitcoin—an inherently digital medium of exchange—can be turned into physical money.
- An Option Beyond Government Issued Fiat Currency
Fiat money is anything that is considered as legal tender by a government. There are numerous advantages to a currency that is regulated by a centralized authority, but it comes with its own downsides as well.
For example, governments regularly influence the value of its money to deal with different macroeconomic conditions. A devaluation might be good for the economy as a whole, but it negatively affects individuals.
We as individuals cherish our inherent right to choose, right? An alternative to fiat currency is just that, a choice. We can choose to store some of our wealth in the form of a decentralized currency free from the whims of our government.
- An Online Currency for Online Shopping
Conventional money is simply not suited for online shopping. If you’re using credit cards, you have to turn over your personal information and wait for them to charge you according to the agreed upon price. If you’re not using credit cards, you have to transfer money from your bank account to a payment processor and then make an online payment.
Money in the 21st century should function just as well online but, unfortunately, it is simply not suited for the digital world. Cryptocurrency is digital money. It works just as well online as it is offline. You don’t have to hand over sensitive information. You simply transfer the money and make the purchase.
- The Cost of Using Cryptocurrency
The cost of moving money in the form of cryptocurrency is surprisingly cheap. Even if a cryptocurrency payment processor is involved, it is still cheaper than most payment services companies.
For example, credit cards charge a percentage of the total amount. Bitcoin, on the other hand, has a fixed transaction fee. You would pay the same amount whether you’re transferring $100 or $100,000.
- Fraud Prevention
You might have heard about the recent security breach at a large credit reporting agency, Equifax. If a credit reporting agency cannot safeguard our financial information, can we really expect online merchants to effectively safeguard our payment information?
Such thefts are impossible if cryptocurrencies are involved. Since we don’t have to share sensitive information when paying with bitcoin, there is no risk of our information ending up in the hands of hackers.
If you’re making a payment with bitcoin, you simply enter the recipient’s address and send the money. If you don’t have to share sensitive information, it simply can’t end up in the wrong hands.
- Transaction Speed
Cryptocurrencies are not instantaneous. And this is not a bug but a feature. Credit cards and other methods offer instant transfers. Cryptocurrencies, on the other hand, can take somewhere between a few minutes to a couple of hours.
However, if you’re sending money across borders or if your payment needs to be cleared, the transaction can take up to five working days. Those restrictions don’t apply to cryptocurrencies. Bitcoin might not be ideal for buying coffee, but it certainly is faster than the existing banking channels.
- A Deflationary Currency
Inflation is a fact of life. Our economic system is developed around it. Low and sustained inflation is considered a good thing. It represents economic growth. However, as individual savers, it has a tendency to creep up on us. It slowly eats away at the value of our money, and since it’s a gradual process, we don’t really notice it happening.
Cryptocurrencies are inherently deflationary, meaning, they help us counter the inflationary forces of conventional money. Instead of losing its value, it increases in value.
Today we sit and wonder whether we should use cryptocurrency or not. Two decades ago, we were wondering about the merits of email. It’s the same with all new transformative technologies. Cryptocurrency doesn’t necessarily have to seep into our economic system in the form of bitcoin.
There might be a lot of uncertainty around cryptocurrencies, but one thing is for sure, we certainly need a new system of money that conforms better to today’s realities. Cryptocurrencies are a consequence of the digital revolution, a revolution that is continuously transforming our societies.