THE FUTURE OF CRYPTOCURRENCIES BEF411 – MONETARY ECONOMICS ASSIGNMENT Programme: Bachelor of arts in Economics and Finance Author: Immanuel Sitwala Due Date: 23rd September 2022 THE FUTURE OF CRYPTOCURRENCIES This Essay focuses on cryptocurrencies, how they have changed the financial world and their potential impact on the future of the world. It begins with a brief background to cryptocurrency; its genesis as well as what exactly it is. Thereafter its growing functions and applications are discussed, from the perspective of the future implications that they bring. Finally, a short summary of the ideas brought forth will be delivered to conclude the discussion. Cryptocurrency is a digital form of currency that uses cryptography to secure the processes involved in generating units, conducting transactions, and verifying the exchange of currency ownership (Kaspersky, 2022). Unlike most currency, cryptocurrency is not issued by a government entity, it is completely decentralized, making use of Blockchain Technology to maintain records of transactions across several computers, connected via a peer-to-peer network. This decentralized system ensures that cryptocurrencies are immune to manipulation and do not collapse because of a failure at a single point (Mukhopadhyay, et al., 2016). The first and most popular cryptocurrency, was introduced to the public in the year 2009, when it was launched by an anonymous developer, known only by his pseudonym, Satoshi Nakamoto (Nakamoto, 2008). Since then, cryptocurrencies have evolved erratically, with over 12,000 cryptocurrencies in existence today and the growth rate is rising, the end of 2021 recording approximately 1000 new cryptocurrencies per month (Daly, 2022). There are several applications of cryptocurrency and as time moves the possibilities keep on increasing. Business organizations have begun to use cryptocurrencies for digital finance. Supply Chain Finance, Digital Lending and Digital Payments and Cryptocurrency Crowdfunding, which operates just like ordinary crowdfunding in that it is a platform that allows entities to gain finance from multiple sources to fund projects, only difference is cryptocurrency crowdfunding focuses on cryptocurrencies such as bitcoin Ethereum etc. what makes these innovations ideal for small businesses such as Start-ups and companies in general, is that Digitalized Finance is a cheaper alternative and has a broader reach than the traditional methods because of the Blockchain technology which is not censored, which means it does not have the limitations that the traditional crowdfunding possesses (Chinsonso, 2022). This comes with implications on the future of Finance decisions throughout the globe. Cryptocurrency provides a more efficient way to raise money with crowdfunding and therefore it is likely to gain more popularity and become the favoured approach for businesses in future. One of the various applications of the Blockchain technology used to facilitate cryptocurrencies is that it can be used to track financial crimes. The emergence of cryptocurrency has had financial crime adapt, however, the belief that it is more prone to suffer criminal offenses could not be far from the truth because the underlying technology records all transactions that take place using cryptocurrency in a public ledger, therefore making it almost impossible to get away with theft and crypto forensic firms can attest to this. The fact is cryptocurrency is easier to track than fiat currency (Jha, 2022). Cryptocurrencies have crossed the gateway into the global financial markets being listed on the Stock Exchange of some countries. The crypto market has had an unfortunate start to the year 2022, for reasons that are unknown, which in turn makes it impossible to predict whether the crypto market will continue its record performance in the late months of 2021. However, even those uncertain events carry with them implications on the future of cryptocurrencies. Cryptocurrencies currently run unregulated, but this is likely to change in the future, lawmakers across the world are learning more about cryptocurrencies now they are becoming more mainstream and as such, governing bodies, particularly in the United States of America (USA) are showing interest in the regulation of cryptocurrency. This does not necessarily have to be perceived as something negative, experts believe that the regulation of cryptocurrencies will stabilize the notoriously volatile crypto market as well as protect the investors. (Gailey, 2022). Cryptocurrencies face some limitations that hinder their progress and threaten their future on a global scale. For starters, cryptocurrencies have no intrinsic value, and their value fluctuates and may be quoted differently on different markets, thus an argument can be made that they are merely speculative property and not really currency. Another draw back is that even though the supply of cryptocurrency is potentially limitless, countries that do not possess sophisticated banking systems and financial sectors cannot make use of the cryptocurrencies. Cryptocurrencies are maintained in digital wallets, which means a computer device is necessary to access the funds and use them. Some countries especially in the third world simply are not as technologically advanced to support the rise of cryptocurrencies. This negatively affects the future of cryptocurrencies (Radivojac & Grujic, 2019). All in all, Cryptocurrencies present a plethora of possibilities and completely redefine currency as we know it. The entities that have taken the most advantage of its creation are the firms, using cryptocurrencies as a more efficient source of finance. The decentralized system and public record of all transactions make it easier to monitor and therefore making it difficult for financial crimes to occur. With rapid growth and instability of the crypto market, cryptocurrencies are likely to be regulated soon. The fact that cryptocurrencies have no intrinsic value, and third world countries cannot support their use, means that the future cryptocurrencies face a major challenge in spreading across the globe. To answer the complex question as to where the future of cryptocurrencies lies, the answer is equally complex, it entirely depends on the context. REFERENCES Chinsonso, O. (2022, May 2). DAOs: A blockchain-based replacement for traditional crowdfunding . Retrieved from COINTELEGRAPH: https://cointelegraph.com/news/daos-a-blockchain-based-replacement-for-traditionalcrowdfunding Daly, L. (2022, June 27). How Many Cryptocurrencies Are There? Retrieved from The Motley Fool: https://www.fool.com/investing/stock-market/marketsectors/financials/cryptocurrency-stocks/how-many-cryptocurrencies-are-there/ Gailey, A. (2022, August 10). The Future of Cryptocurrency: 8 Experts Share Predictions for the Second Half of 2022. Retrieved from Time: https://time.com/nextadvisor/investing/cryptocurrency/future-of-cryptocurrency/ Jha, P. (2022, April 28). Blockchain and crypto can be a boon for tracking financial crimes . Retrieved from COINTELEGRAPH: https://cointelegraph.com/news/blockchain-andcrypto-can-be-a-boon-for-tracking-financial-crimes Kaspersky. (2022). What is cryptocurrency and how does it work? Retrieved from Kaspersky: https://www.kaspersky.com/resource-center/definitions/what-iscryptocurrency Mukhopadhyay, U., Skjellum, A., Hambolu, O., Oakley, J., Yu, L., & Brooks, R. (2016). A brief survey of cryptocyrrency systems. 14th Annual Conference on Pricacy, Security and Trust (pp. 745-752). IEEE. doi:10.1109/PST.2016.7906988 Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from Bitcoin.org: https://bitcoin.org/bitcoin.pdf Radivojac, G., & Grujic, M. (2019). FUTURE OF CRYPTOCURRENCIES AND BLOCKCHAIN TECHNOLOGY IN FINANCIAL MARKETS. Journal of Contemporary Economics, 56-75. .
