Technology has never failed to impress us. In 2009, the concept of digital currencies was created. Basically, cryptos or the digital mode of currencies is created and managed through the use of advanced encryption techniques known as cryptography. In 2009, Bitcoin was created and in the coming years, it captured significant investor and media attention. The question that arises is are these currencies here for long term?
Bitcoin – the Current Standard
What is Bitcoin? Bitcoin is an unregulated currency that uses peer-to-peer technology, which enables all functions such as currency issuance, transaction processing, and verification to be carried out collectively by the network. The alluring feature about being decentralized is that there is no interference from a third party. A slight issue might be that there is no centre to ensure that things run accordingly. The process used to create Bitcoins is mining. The mining process requires a powerful system to solve complex algorithms and crunch numbers. They are currently created at the rate of 25 Bitcoins every 10 minutes and will be capped at 21 million, a level that is expected to be reached in 2140.
The fact that Bitcoin is decentralized and the presence of transaction anonymity attracts a host of illegal activities including money laundering, drug peddling, smuggling, and weapons procurement. Many government agencies such as the Financial Crimes Enforcement Network (FinCEN), the SEC, and even the FBI and Department of Homeland Security (DHS) are focusing on this because of the lack of a centre. In May 2013, the DHS froze an account of Mt. Gox – the largest Bitcoin exchange – that was held at Wells Fargo, alleging that it broke anti-money laundering laws. And in August, New York’s Department of Financial Services issued subpoenas to 22 emerging payment companies, many of which handled Bitcoin, asking about their measures to prevent money laundering and ensure consumer protection.
Alternatives to Bitcoin
There is no doubt about the fact that Bitcoin has had its issues, but still, many popular companies have started to work on alternative currencies.
Litecoin – Litecoin is regarded as Bitcoin’s leading rival at present, and it is designed for processing smaller transactions faster.
Ripple – Ripple was launched by OpenCoin, a company founded by technology entrepreneur Chris Larsen in 2012.
MintChip – Unlike most cryptocurrencies, MintChip is actually the creation of a government institution, specifically the Royal Canadian Mint. MintChip is a smartcard that holds electronic value and can transfer it securely from one chip to another.
It is hard to predict the future of almost anything in the world. Talking about cryptocurrencies, there are certain factors that can create an issue for your assets. What can happen is that one’s digital fortune can be erased by a computer crash, or that a virtual vault may be ransacked by a hacker – may be overcome in time through technological advances. What will be harder to surmount is the basic paradox that bedevils cryptocurrencies – the more popular they become, the more regulation and government scrutiny they are likely to attract, which erodes the fundamental premise for their existence.
The number of users who accept the digital mode of payment has increased, but still, they are a minority. The mass adoption of the digital mode of payment will take time. For cryptocurrencies to be adopted globally, they have to first gain widespread acceptance among consumers.
Since cryptocurrencies aspire to become a part of the mainstream financial system, it may have to satisfy widely divergent criteria. It would need to be mathematically complex (to avoid fraud and hacker attacks) but easy for consumers to understand; decentralized but with adequate consumer safeguards and protection; and preserve user anonymity without being a conduit for tax evasion, money laundering, and other nefarious activities. Since these are formidable criteria to satisfy, is it possible that the most popular cryptocurrency in a few years’ time could have attributes that fall in between heavily-regulated fiat currencies and today’s cryptocurrencies? While that possibility looks remote, there is little doubt that as the leading cryptocurrency at present, Bitcoin’s success (or lack thereof) in dealing with the challenges it faces may determine the fortunes of other cryptocurrencies in the years ahead.
Since its birth, Bitcoin has sparked a debate about its future and that of other cryptocurrencies. Despite Bitcoin’s recent issues, its success since its 2009 launch has inspired the creation of alternative cryptocurrencies such as Litecoin, Ripple, and MintChip. We will have to wait and watch how much time the currencies are going to take to gain trust globally.