The Importance and Future of Cryptocurrency

Brittany Aufiero
May 17th, 2019
MCS 244
Prof. Brucker-Cohen
The Importance and Future of Digital Currency

Around the world, cryptocurrency is used as a government-untraceable method of electronic money transfer. Digital currency has transformed commerce and the way people exchange money for goods and services. While impossible to know just how many people use this technology as a whole, it is estimated that approximately 16 million Americans have invested in bitcoin (the leading cryptocurrency globally), and that there are 25 million users relying on bitcoin internationally as well (Lielacher). Since bitcoin is just one of many forms of digital currency available to the public, the total amount of cryptocurrency users everywhere likely exceeds this estimate by quite a lot. From financial institutions and business moguls to black market criminals, people of all walks of life have found cryptocurrency to be a worthwhile investment. As an international currency, it has changed the world by contributing to the globalization of technology, and has provided internet users with a common mode of monetary exchange that does not rely upon any one government’s financial institution, due to its un-centralized nature.

Bitcoin was created in 2009, but it wasn’t until 2017 that the digital money exchange service took off as a means of making purchases or a profit. In its early days, it was intended to provide those who do computational work with a way of receiving appropriate compensation. Since then, it has become a mass currency used by individuals all over the world in order to conduct business transactions having nothing to do with computation. Every day, more businesses and services make the choice to begin accepting bitcoin as a form of payment. Bitcoin can be used to pay for flights and hotels through websites like Expedia, and even for space travel, if one has accumulated enough coin. Microsoft, too, accepts bitcoin through its app store, where one can buy movies, video games, music, and mobile apps (Acheson). In addition to its growing viability on the market, bitcoin and other cryptocurrencies appeal to investors because of its secure encrypted transactions through the utilization of blockchain. Blockchain anonymously records transactions in blocks of data that cannot be changed retroactively through chain-script coding. In his article “Blockchain Will Disrupt Every Industry”, Vala Afshar acknowledges how such encryption has built trust between cryptocurrencies and consumers. He writes, “Trust is foundational to all businesses, and Blockchain enables entities to seamlessly establish trust and transparency at scale.” Blockchain is reliable and applicable to other forms of business as well, thus making it a valuable tool for many different platforms and services.

Though digital currency provides a convenience and safety that appeals to many, it is important to note that its anonymous and unregulated nature has attracted a criminal element. Many governments around the world discourage its use, even going so far as to make it illegal. Such is the case in Bolivia, where the central bank has banned the use of currency or tokens that have not been issued by the government. In Bangladesh, the use of cryptocurrencies is a “punishable offence” (“Is Bitcoin Legal?”). Huobi Company, the third largest crypto exchange by trade volume world wide, was forced to move from its home turf in Beijing, China to Singapore, due to pressure from regulators in China who have taken a hard stance against digital currency (Aki). More progressively, Canada has created “bitcoin legislation” that designates cryptocurrencies to be considered “money service businesses”, but which also forces them to comply with anti-money laundering and know-your-client requirements. In the United States, the question of how to handle cryptocurrency is a point of much contention. On the one hand, the U.S. has a single, centralized currency which can be used nationwide, in any of the fifty states However, individual states have taken different action to impose come regulation and restriction on cryptocurrency. In New York, for example, BitLicense was unveiled in 2015, giving bitcoin businesses approval to operate, but with expensive requirements. As a result, many startups migrated to states where they could function without having to adhere to these policies. In 2017, Japan was the first country to declare bitcoin to be “legal tender”, thus recognizing it as a pre-paid form of payment (“Is Bitcoin Legal?”).

While bitcoin is considered the first digital currency to come on the market, early theoretical proposals and prototypes for similar tools, such as B-Money and Bit Gold, served as the basis for bitcoin’s later model. B-Money was first proposed in 1998 by Wei Dai, a computer engineer who outlined how online work could be documented by anonymous, encrypted ledgers, and how that work would be rewarded through a distribution of funds. The projects were never fully developed, and it wouldn’t be until an unidentified person using the pseudonym Satoshi Nakamoto posted a paper called “Bitcoin – A Peer to Peer Electronic Cash System” to a mailing list discussion of cryptography in 2008 that the project gained enough traction that bitcoin emerged (Marr). To this day, Nakamoto’s true identity remains unknown, though some have speculated that it may be Dai himself, who is a notoriously private individual and may have felt it necessary to remain anonymous for fear of legal repercussions. Bitcoin was only the first of many forms of digital currency to rise in popularity in the twenty-first century; others, such as Bitcoin Cash, Dash, LiteCoin, and Ethereum exist today as alternatives to the forerunner of the age of cryptocurrency (“What is Ethereum?”).

Originally, cryptocurrency sought to work outside of the banking system to evade the roadblocks government regulations and oversight can pose, but many argue that digital exchange companies have lost sight of this original goal. In his article “How Bitcoin Ends”, Douglas Rushkoff voices concerns that the technology is not living up to its purpose. He writes, “Bitcoin will simply reinforce the very banking system it was invented to disrupt…It was intended to break the monopoly of the banking system over central currency and credit.” In adhering to the same laws of finance that led to wealth disparities based on central currency (such as USD, or Euros), bitcoin and other cryptocurrencies are only extrapolating the same kinds of capitalist techniques to maintain the wealth status quo. Early investors – namely, “nerds”, according to Rushkoff – have grown significantly wealthy as a result of their quick foresight in recognizing the potential for the technology. By the time bitcoin and the others had gained greater public awareness, a single unit was so expensive that the average-income person could not afford it. As a result, bitcoin has become a digital mirror of the same wealth disparities that exist in central currency throughout society. Earlier this year, in an attempt to stay relevant in a changing financial landscape, JP Morgan announced that it would soon be creating its own cryptocurrency exchange service, “JPM Coin”, therefore becoming the first major U.S. bank to do such a thing (Ungarino). With other banking institutions sure to follow suit, Rushkoff’s prediction for the possible future of digital currency may not be so far-fetched.

Though digital currency has experienced a rise in popularity following the attention bitcoin received in 2017, it is still less commonly used than other forms of payment. Payment systems such as PayPal and credit cards still reign as the leading methods of non-cash money exchange, with PayPal serving over 235 million active users and companies like Mastercard and Visa boasting over 1 billion active users internationally (Lielacher). Despite this, in 2017 the price of bitcoin shot up to over $10K per unit (Marr), exceeding all previous records and proving that there is a definite enthusiasm for the technology as a way of circumventing regulations and staying anonymous in one’s transactions. As businesses continue to be disrupted by the emergence of cryptocurrency, it will become more widely accepted as a payment method. It offers an alternative to cash or plastic that would render these eco-unfriendly methods obsolete, and bring society into a future where all money is digital. Looking forward, we can expect to see a massive shift towards cryptocurrency due to its tremendous importance as a communication technology.

Works Cited:

Acheson, Noelle. “What Can You Buy With Bitcoin?” CoinDesk, 20 Jan. 2018. https://www.coindesk.com/information/what-can-you-buy-with-bitcoins.

Afshar, Vala. “Blockchain Will Disrupt Every Industry.” Huffington Post, 10 July 2017. https://www.huffpost.com/entry/blockchain-will-disrupt-every-industry.

Aki, Jimmy. “Huobi Group Sets Up Communist Party Committee In Beijing.” Bitcoin Magazine, 19 Nov 2018. https://bitcoinmagazine.com/articles/huobi-group-sets-communist-party-committee-beijing/.

“Is Bitcoin Legal?” CoinDesk, 5 Jul. 2018. https://www.coindesk.com/information/is-bitcoin-legal.

Lielacher, Alex. “How Many People Use Bitcoin in 2019?” Bitcoing Market Journal, 11 Feb. 2019. https://www.bitcoinmarketjournal.com/how-many-people-use-bitcoin/.

Marr, Bernard. “A Short History of Bitcoin and Crypto Currency Everyone Should Read.” Forbes, 6 Dec. 2017. https://www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read/#950d5be3f279.

Rushkoff, Douglas. “How Bitcoin Ends.” Fast Company, 1 Mar. 2018. https://www.fastcompany.com/40537404/how-bitcoin-ends.

Ungarino, Rebecca. “Introducing ‘JPM Coin’: JPMorgan will be the first major US bank to launch its own cryptocurrency.” Business Insider, 14 Feb. 2019. https://markets.businessinsider.com/currencies/news/jpmorgan-cryptocurrency-launch-jpm-coin-a-first-for-a-major-us-bank-2019-2-1027953761

“What is Ethereum?” BlockGeeks, May 2019. https://blockgeeks.com/guides/ethereum/.

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