Crypto is the next step in the evolution of the currency, but it must adapt to succeed
What are the main reasons why the adoption of conventional cryptocurrency has not yet started? And why is it still so complicated?
As the human race evolves, our means of exchanging value also continually develop. From the barter system dating from 6,000 BC. C. For the current use of fiat currency, the human race has been on a non-stop journey toward creating more efficient methods of exchange. Factors such as convenience, availability, stability and sustainability have played crucial roles in the evolution of exchange methods.
What is fiat currency?
The fiat currency is essentially paper money backed only by the word of the government and the regulations of the Central Bank. It became the preferred method of exchange globally at the expense of other methods, such as commodity-based currencies and barter. This was due to its convenience, relative value stability, and also because it is under government control. Fiat currencies gained prominence in the 20th century, in part because governments sought to insulate their economies from the worst effects of natural fluctuations in the business cycle.
A fiat currency is a legal tender that has a value based on the issuing government rather than physical assets. Therefore, its value is as good as the issuing government. Corrupt politicians and irresponsible governments have been guilty of printing excess money to cover their failures. This results in an endless cycle of inflation or, worse still, a recession. In 2019, Zimbabwe struggled with hyperinflation of over 300% after a long period of political unrest.
As the world became increasingly digital into the 21st century, the need for a secure digitized means of payment became inevitable. Banks and other financial institutions continued to adopt various digital payment methods. Blockchain breakthrough finally came in 2008 when Satoshi Nakamoto published a white paper on what would become Bitcoin (BTC), the first and most popular modern cryptocurrency.
As a decentralized medium of exchange, the elimination of third parties and Central Banks is, without a doubt, the most important advantage of cryptocurrency. Unlike fiat currencies, blockchain technology is a public book and is strictly regulated by a process called mining. This ensures that all money in circulation is accounted for, promoting transparency and accountability in technology.
Replace fiat currencies with cryptocurrencies
Cryptocurrency outperforms fiat currency in processing fast, reliable and efficient media of exchange, especially in a digitized world. However, the technology has to overcome some major hurdles to become more popular than traditional fiat currencies. Here are a few reasons why widespread adoption of cryptocurrencies is complicated:
Governments and regulatory institutions are among the many barriers that cryptocurrency faces in its attempt to emerge as a globally accepted medium of exchange. Taxation of distributed ledger technology is complicated because it is independent of traditional banking systems and governments. Furthermore, politicians and governments can shape economies by controlling the circulation of money. Consequently, by creating hostile policies and discouraging the use of cryptocurrencies, governments can control their use and ultimately ensure the flow of fiat currency.
Recently, Twitter suffered from what could possibly be the worst hack since its inception. Celebrities, billionaires, and multiple cryptocurrency exchanges were targeted and hacked. Hackers made up different messages asking people to send Bitcoin to a wallet address to receive double the amount, and around $ 120,000 in BTC was lost to the scam.
While Bitcoin’s involvement in the scam doesn’t tell a quarter of the story, its use in fraud, scams, and some dark web activity has been a deterrent to blockchain’s popularity.
Bitcoin mining and consumed energy
As previously mentioned, Bitcoin transactions are verified through a unique process called mining. Transactions in the distributed ledger are confirmed and stored as “information blocks” by Bitcoin miners. However, mining is a complex and energy consuming process that requires a large amount of energy and power generation. The University of Cambridge estimates that Bitcoin consumes 0.21% of the electricity produced by the world, an amount close to the total electrical consumption of countries such as Romania, Bangladesh and Israel.
As many mining farms around the world seek to expand their operations to prepare for a future with cryptocurrencies, the big question remains: how sustainable is this long-term energy consuming process?
Originally designed to process seven transactions per second, blockchain technology now faces a huge scalability problem. While the intention of the Bitcoin developers was solely to prevent hackers from tampering with the technology, the transaction capacity simply cannot adapt to the massive use of the blockchain.
This would be further complicated by an increase in industries and investors seeking to adopt the technology. While cryptocurrency experts have debated over the years whether to increase block size or use an exponential reduction approach, it remains to be seen whether and how the scalability problem can be solved.
While the blockchain technology market is expected to be worth more than $ 39 billion by 2025, its general adoption and eventual replacement of fiat currencies may still be a massive reach. Cryptocurrencies certainly have a long way to go, and investors can sit back and watch the technology unfold shortly.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.