Introduction
The use of metal coins as money happens by the 7th century B.C. and, eighteen centuries after (by 11 A.D.), while the Song dynasty, is known that paper money starts to be used in China. Despite centuries of financial innovations, both paper money and coins have not been replaced and they are still part of our daily life.
In the digital universe, Bitcoin and other decentralized cryptocurrencies based on blockchain technology, such as ECC, exist for over a decade already. While Facebook is planning its own blockchain digital money called Libra (although it is not decentralized and it is not technically a “cryptocurrency”).
With all this technological evolution, would cryptocurrency (digital currencies) be the future of money?
The future of money: cryptocurrencies’ role
Cryptocurrencies exist since Bitcoin was launched for the first time in 2008. However, they really caught global attention only in 2017, when the Bitcoin’s price rose to almost US $20.000.
Since then, the numbers of digital money widened while they carried out a series of different functions: they fuel new ways of financing, they allow smart contracts to be implemented on their blockchains, and they can be used as an investment offer or even as medium of exchange. However, to what degree can we be certain that cryptocurrencies are the future of the mediums of exchange for commercial transactions?
Many have debated cryptocurrencies’ potential to become the future of money. And while there is much speculation about what will really happen, Deutsche Bank, the biggest bank in Germany, has published a broad report carried out by a group of researchers led by the global director and bank’s strategist, Jim Reid.
The report, called “Imagine 2030” portraits the future of money until the end of the present decade and states that, with a declining monetary system all over the world, cryptocurrencies will be the future of money. But why?
Risks for the fiduciary system
Deutsche Bank researchers are skeptical about the survival of the monetary system based on fiduciary currency and suggest that they may become redundant in the next decade.
The centralized monetary system is one of those financial structures about to be disrupted by new forms of digital currencies. “The forces that have held the current fiat system together now look fragile […] Over the next decade, some of these forces could begin to unravel and demand for alternative currencies, from gold to crypto, could take off.”, says the study.
The report states that in the past 40 years, the emergence of China as superpower and the boost of the global labor force supply contributed to the suppression of the inflation levels, what allowed the continuity of the fiduciary model – in which the trust ensures the currencies’ market cap.
However, since the world’s population is reaching its peak of productive aging, the supply of the workforce may start to decline, pushing up the wages. This, in turn, would put pressure on financial systems, opening up the entrance for cryptocurrencies.
The report asks: “Will fiat currencies survive the policy dilemma that authorities will experience as they try to balance higher yields with record levels of debt? That’s the multi-trillion dollar (or bitcoin) question for the decade ahead”
Specific aspects for adoption of cryptocurrencies
Despite the many difficulties that cryptocurrencies have faced since their creation, the scenario is certainly favorable for their adoption as the future of money. Paper money is no longer the favorite medium of exchange for the majority of people – both customers and companies increasingly choosing digital payments, which would then open an excellent way for the use of cryptocurrencies.
The possibility of eliminating inflation is also another crucial aspect.
Blockchain has offered the opportunity to take the power out from institutions and has provided people a better service. Cryptocurrencies operate universally, in other words, for the first time currencies can work in a global and simplified way. Having then truly international currencies, the possibilities of global economic growth and social equality are infinite.
Although their well-known benefits, cryptocurrencies still have to overcome some important obstacles to become widespread. As the report points out, digital money must become legitimate in the eyes of governments and regulators. It is possible by bringing price stability and presenting benefits to both companies and consumers, which has already started to be made.
A second challenge to cryptocurrencies is that they have also to allow a global reach in the payment market. For that, alliances must be made with the main interested parties – mobile apps, such as Apple Pay and Google Pay, card issuers, like Visa and Mastercard, and retailers, for example Amazon and Walmart. And, of course, cryptocurrencies must have a non-stop development work, with the objective of making their circulation easy.
If the listed challenges can be taken into account, adoption rates are going to increase over time.
In fact, if the current trend does not change, by 2030 the number of cryptocurrency wallet users could reach around 200 million, according to the report. Maybe an even higher number, taking into account the current growing evolution of technology.
Therefore, the question would be which countries are going to make good use of the advantages of being the firsts of obtaining licenses and making alliances following this path. As this happens, the line between cryptocurrencies, financial institutions and the public and private sectors could gradually fade.
In the meantime, research and evaluate opportunities of solid cryptocurrencies, which main objective is to make people’s life easier and that have a long-term project to be used by many users, in a practical, easy and safe way.
