The impact of cryptocurrency on the Global Economy is one of great debate. The definition of cryptocurrency in the Merriam-Webster dictionary is as follows: any form of currency that only exists digitally, that usually has no central issuing or regulating authority but instead uses a decentralized system to record transactions and manage the issuance of new units, and that relies cryptography to prevent counterfeiting and fraudulent transactions (Merriam-Webster). The most important part of that definition for the purpose of this paper is that it uses a decentralized system. The global economy mostly relies on the US dollar as its reserve currency. By operating independently of a centralized bank cryptocurrency poses a potential upheaval in the US Financial market which is used by all mainstream financial actors all over the world. For this reason, any turmoil affecting the US financial market usually creates a cascading effect all over the world. A good example of this cascading effect would be the 2008 global financial crisis. The economic hardships caused were far reaching not just in the US financial market but all over the world.
Cryptocurrency is based in blockchain technology. This technology is primarily used to verify transactions, within digital currencies though it is possible to digitize, code and insert practically any document into the blockchain. Doing so creates an indelible record that cannot be changed; furthermore, the record’s authenticity can be verified by the entire community using the blockchain instead of a single centralized authority (Investopedia).
The first cryptocurrency launched in 2009 was called Bitcoin, from which many other cryptocurrencies started to appear. Bitcoin’s design attempts to provide some level of “pseudonymity” by not directly publishing the identities of the participating parities. Every user interacts with the network by establishing a public address that acts as a “pseudonymous identity”. In practice, there is no bound on the number of addresses a user can create; therefore, there exists no single address a user can be related with (Genkin, 2018). However, unlike a centralized transaction where the source of the original funds cannot be determined, there is a way through blockchain to determine all transaction information. This is an easy way for unscrupulous people to find out pertinent details about the payer or payee and take advantage.
International transfer transactions provide a secure and safe network to conduct business that takes the time to confirm it is a legitimate deal. With cryptocurrency, the transaction does not go through the process of authentication and takes just seconds to complete. The fees are low and the privacy of the transaction is appealing. By cutting out the middleman in the payment processing market, cryptocurrencies are causing a huge disruption to the global payment system. One of the reasons for the centralized payment processing protocol is to prevent funding for money laundering, terrorist activities, and illicit trade in drugs and ammunition. With cryptocurrencies, it becomes that much harder to trace transactions and ascertain the identities of the participants. Central banks and other financial institutions seem to have no control over its operations. In September of 2017, Christine Lagarde, head of the International Monetary Fund (IMF) warned that cryptocurrencies have the potential to disrupt the Central Banking system and to revolutionize the concept of money (Mission, 2018).
Publicly traded companies are starting to see how cryptocurrency benefits them and it is showing in market results. The new symbol of this movement might be Longfin Corp., whose stock rallied over 2,000 percent in a week after announcing it bought a “blockchain-empowered global micro-lending solutions provider.” When stocks surge based on press releases like this, it’s important not to get too caught up in the details of the announcement or what it means for the business; the hype itself is what causes such distortions in markets (Sen, 2017). Unfortunately, getting caught up in a situation is typically what most people do. This can lead to the volatility we so often see in the stock market.
A great deal of attention is being paid to cryptocurrencies. Countries around the world are creating their own versions. Many entrepreneurs have jumped on the bandwagon to create ICO (Initial Coin Offerings) campaigns, selling tokens to the public and raising hundreds of millions of dollars. In 2017, ICOs have become the leading crowdfunding method for technology-based start-ups. No longer do developers and entrepreneurs want to spend time trying to convince venture capitalists, banks, and angel investors to put up equity in their start-ups. This has led to the proliferation of multiple technology-based start-ups that most probably would never have seen the light of day. Instead of being stuck in the proverbial “development hell” for decades, these projects are now in active development and bug-testing phases with millions of dollars in investment funding already secured (Mission, 2017).
There is no question cryptocurrency is impacting the global economy however, whether it will create a disaster or lead us to the next level of international monetary transacting is. Because technology continuously pushes ahead without waiting for laws and regulations to catch up. Because each country has given their own legal status to cryptocurrency, we need a cohesive regulatory system to ensure a more stable future. Setting global standards would allow countries to intensify Bitcoin regulation within their national boundaries, enabling system specific rules. This would permit uniformity without intruding sovereign’s powers (Piazza, 2017). Hopefully, all countries will get on the same page and come to some sort of regulatory agreement.
GENKIN, D., PAPADOPOULOS, D., & PAPAMANTHOU, C. (2018). Privacy in Decentralized Cryptocurrencies. Communications Of The ACM, 61(6), 78-88. doi:10.1145/3132696
Weaver, N. (2018). Risks of Cryptocurrencies: Considering the inherent risks of cryptocurrency ecosystems. Communications Of The ACM, 61(6), 20-24. doi:10.1145/3208095
Sen, Conor. December 18, 2017. Cryptocurrencies Are Starting to Affect the Real Economy, Bloomberg.
PIAZZA F. BITCOIN IN THE DARK WEB: A SHADOW OVER BANKING SECRECY AND A CALL FOR GLOBAL RESPONSE. Southern California Interdisciplinary Law Journal [serial online]. Summer2017 2017;26(3):521-546. Available from: Academic Search Complete, Ipswich, MA. Accessed June 7, 2018.
Blockchain Definition | Investopedia https://www.investopedia.com/terms/b/blockchain.asp#ixzz5JBZCigvc
The Mission How Cryptocurrency is Disrupting the Global Economy Jan 2018 https://medium.com/the-mission/how-cryptocurrency-is-disrupting-the-global-economy-89347581aa93