When the first cryptocurrency was introduced a decade ago, no one could envision that there could reach a time where there would be time when the number of cryptocurrencies could hit 4000. The banking and financial sectors have gone through a revolution since the Bitcoin whitepaper was released. The digital revolution was meant to eliminate the centralized model of managing finances and take control back to the people through peer-to-peer networks.
The original idea behind the first cryptocurrency has changed over time, and we can now even see governments in the process of creating national cryptocurrencies. So, where does the traditional financial system stand in the modern digital world? We shall seek to understand how cryptocurrencies are disrupting traditional finance:
Modern websites must assure you that they won’t keep your personal data before engaging in an online transaction. However, there will always be a trace whenever you use traditional financial systems when sending or receiving money online. For instance, an online retailer can always see your name and bank details when sending money. In addition, your bank can also check your activity whenever you transact online, which is more of spying.
Crypto, on the other hand, allows users to send and receive cash anonymously. For instance, when you send Bitcoins, all that will be shown is the sending wallet. Moreover, cryptocurrencies will also not ask for your address or other personal details when sending funds. You can thus be assured that no one will be spying on you whenever you transact online.
For many ages, money control has been under central banks and commercial banks. The government can thus implement various measures to influence the flow of money in the country. For instance, when the government wants to control inflation, it can instruct commercial banks to raise interest rates and reduce money flow in the economy. The government can institute such measures as it is in control of the money in circulation.
Cryptocurrencies are not under the control of any government or financial institution. The digital coins are stored in distributed digital ledgers with no central control. As a result, cryptocurrency owners never worry that the money they are holding in the form of digital coins may be faced out (like what happens with fiat money.)
The law of demand and supply determines the supply and prices of cryptocurrencies. But, on the other hand, a government can decide to devalue its currency in times of crisis. Crypto thus comes in handy for people who want to escape centralized money control.
A typical online transaction where you want to send money to another person can involve at least two intermediaries. The presence of various intermediaries means that online transactions tend to be expensive. It even gets worse when the government taxes every online transaction. Some online platforms may fail to charge fees for transactions; however, some money will always be lost if there is some currency conversion.
Cryptos are based on peer-to-peer networks where money is stored in distributed ledgers. The elimination of intermediaries means that fees are reduced. Fees charged on crypto transactions are used to reward miners and maintain the network. On the other hand, financial institutions are in business and will thus charge high transaction fees to increase profits.
Crypto payments also tend to have higher limits than traditional payment modes on most online platforms. Internet users can thus transact huge amounts without fear that their accounts will be censored.
Hacking is one of the biggest fears of people who use traditional payment processors online. Cases of fraud and stealing personal data are very common in the online space. Some hackers can also alter data on online databases and advance their ill motives.
Crypto payments are secured through cryptography, making it hard for hackers to get through. Blockchain technology is also fool-proof, and no one can alter the entries unless he or she controls less than half of the nodes on the network.
Do cryptocurrencies threaten traditional financial systems?
No. Even though cryptocurrencies have some advantages over traditional financial systems, the latter still have their place in society. The ban on the use of cryptocurrencies in some countries, lack of a solid infrastructure to blend cryptocurrencies into the current financial systems, and lack of understanding of how digital coins work are some of the reasons that make traditional financial systems dominate the modern world.
Are cryptocurrencies a hype?
No. However, people are now focusing on the bigger picture in blockchain technology rather than one application on cryptocurrencies. Some of the industries benefiting from Blockchain on top of finance include banking, gambling, insurance, real estate, and supply chain, to mention a few.
For instance, Blockchain can avail up-to-date sports betting stats through in-depth analysis, live scores, provide bet tracking data, and provide odds that cannot be manipulated. Another perfect example is in the supply chain management, where tracking data is recorded on the Blockchain and makes it easier for both the customer and supplier to follow the goods on transit.