Digital and Cryptocurrencies Going Mainstream?

 

Exploding Topics

This is the first time I have chosen to write about cryptocurrencies.  They have been around since Bitcoin was created in 2009.  The reason I never have written about it is simply because really don’t fully understand how it works.  Early on, I thought it was a fad, a flash in the plan, that would quickly fade away.  I thought it was the pet rock of currencies. 

I couldn’t have been more wrong.  The idea of digital or cryptocurrencies appears to be here to stay. 

Furthermore, cryptocurrencies are not easy to understand.  If I cannot understand something as important and complicated as these currencies are, I tend to stay away from them until I have more understanding.  Oddly, people, I know with only the understanding that it is possible to make money on the relative value of Bitcoin, have actually made money. 

Bitcoin has been around going on 13 years.  Per another blog, Exploding Topics:

• As of January 2022, there are 16,598 cryptocurrencies in existence.
• However, not all cryptocurrencies are active or valuable. Discounting many “dead” cryptos leaves only around 9,631 active cryptocurrencies.
• There are upwards of 300 million cryptocurrency users across the globe. And approximately 18,000 businesses now accept a form of crypto as payment.

What inspired me to write about Cryptocurrencies today?  There were two articles in today’s Wall Street Journal to made me realize, finally, that digital and cryptocurrencies were here to stay and on the brink of going mainstream.

• Fed Launches Review of Possible Central Bank Digital Currency
• New York City Mayor Eric Adams to Convert First Paycheck to Cryptocurrency

The Central Bank of the United States, the Federal Reserve or more familiarly the Fed, is preparing a study to consider having a digital US currency.  They will study and present the risks and benefits of doing so.  The US is proceeding very cautiously.  In October 2020, Fed Chairman Jerome Powell said:

We do think it’s more important to get it right than to be the first.  Getting it right means that we not only look at the potential benefits of the CBDC, but also the potential risks and also recognize the important trade-offs that have to be thought through carefully. ~WSJ

Today’s WSJ article noted that:

China created its own government-issued digital currency earlier this year and recently prohibited transactions using cryptocurrencies issued by nonmonetary authorities, naming bitcoin, ether and tether as examples. El Salvador, meanwhile, became the first country in the world to adopt bitcoin as a national currency alongside the U.S. dollar.

It seems that digital and paper versions of currencies can co-exist.  I am not sure how El Salvador can use both dollars and bitcoin as their national currency.  I find these kinds of policies both confusing and hard to comprehend.  Confusion is a recurring theme in my efforts to comprehend crypto and digital currencies.

Mayor Adams is converting his first paycheck as the Mayor of New York City which he is receiving today to Bitcoin and  etherium.  His reason for doing this to promote the role of New York City as the global financial center:

New York is the center of the world, and we want it to be the center of cryptocurrency and other financial innovations.  Being on the forefront of such innovation will help us create jobs, improve our economy, and continue to be a magnet for talent from all over the globe. ~WSJ

Here are some definitions:

• What is a cryptocurrency?  A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. ~Investopedia        
• What is a digital currency?  This definition is actually pretty straightforward.  It is currency that only exists in digital form i.e. there are no coins or paper bills.
• What is blockchain?  A blockchain is a distributed database that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party. ~ Investopedia

Blockchain provides safe and secure transactions.  It is of benefit to corporations to more effectively and efficiently manage their exports and imports.  It is so secure and untraceable that it is also a perfect vehicle exchanging funds for nefarious purposes i.e. contraband and illegal drug transactions.

When it comes to digital currencies, we are already well along that path.  People carry less and less cash with each passing year.  Online banking, direct deposits, credit and debit cards, and phones in lieu of credit cards e.g. ApplePay already have us used to and using digital dollars.  Paper checks are almost outmoded.  International transactions are easier than ever for the average person to execute. 

Are digital and cryptocurrencies going mainstream?  We are way closer than I thought for the digital.  As for the crypto, I imagine countries are trying to figure out how to manage them in a better way than China’s outright banning of them.

There is so much more to learn and write about this.