Report|Will Cryptos Replace Cash?

In a struggle for dominance, the realm of virtual currencies has summoned new champions in fight against cash transactions. Cryptocurrencies, the fresh platoon of digital currencies, join the ranks of their brethren, paperless transactions, in the battle to kill cash. The conflict itself, however, is complicated.

Digital transactions, along with the rising value of cryptocurrencies, have been overriding the growth of real money usage worldwide. According to World Payments Report, paperless payments in 2017 have been increasing in every region by at least 4% of total transactions. The report states that in 2017 alone there has been more than 726 billion non-cash transactions globally. The report also states that the numbers promise a continuous increase with both developing and developed countries, insinuating the idea of an eventual end to cash.

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Data collected from World Payments Report

The World Payments Report expects a continuing worldwide dramatic increase, estimating more positive percentage changes to paperless transactions until 2020.

The potential of cash dying out, as illustrated by the Visual Capitalist, is very likely as only 8% of the world’s total money, $90.4 trillion, is physical. Addressing the rise of digital money, specifically with cryptocurrencies, the market value of all cryptocurrencies holds a substantially strong potential. Since Satoshi Nakamoto created the first cryptocurrency, Bitcoin, in 2009, within less than a decade the overall market value of all cryptocurrencies, as stated in coinmarketcap.com, is worth over $200 billion.

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Bitcoin hit $7000 last week.

 

A cryptocurrency is defined as a digital asset used as a form of exchange that is supported through cryptography. Cryptography is the security system within the digital design of a cryptocurrency that significantly defines its value. We can think of a cryptography design as that of a vault’s lock; the more intricate the design of the lock, the more secure the vault is and the more security there is, a higher incentive to use the vault is managed. That is the essential determination of value with cryptocurrencies. Cryptocurrencies are classified as subsets of digital currencies or virtual currencies. Some examples of major cryptocurrencies include: Bitcoin, Ethereum, Litecoin and Ripple.

Digital currency markets, such as Bitcoin, have exponentially risen in value during the past years along with their adversaries and advocates. JP Morgan Chase’s CEO Jamie Dimon called cryptocurrencies “stupid” and prominent businessman Warren Buffet has dubbed Bitcoin as “a mirage”. However, the “stupid mirage”, as reported by Coindesk, has attracted the investments of several prominent figures like Ashton Kutcher, Nas and Roseanne Barr.

Unlike Kutcher or Nas, economists don’t entirely believe the hype. Philip Graves, professor of economics for over three decades in the University of Colorado, Boulder, is “not interested”.

“Cryptocurrencies are like any other currency; only valuable as long as people think it is valuable,” Graves argued. “If they don’t trust it, they won’t.”

The monetary policy specialist also highlighted the security issues with digital currencies. As cryptocurrencies are unbound by government control and centralized banking systems, there is a lack of appeal to cryptocurrencies in economic policy making. Graves equated the security problems to that of the Federal Reserve’s troubling monetary regulations during the Ronald Reagan era; he explained that cryptocurrencies “need self-control” to attract governments by developing financial stability. For now, Graves argued, the volatile young industry of cryptocurrencies has “no guarantees, only reputation”.

Another CU economist, assistant professor Sergey Nigai, 33, had similar thoughts. Nigai, whose research focuses on globalization’s effects on consumers, workers and firms, argued that the rise of economic value depends on “habit formation”.

Cryptocurrencies, Nigai said, would need “critical mass and a means of common access” for an internationally substantial level of adoption. Digital currencies like Bitcoin or Ripple would require further technological advancements that enable a long term stable and accessible market. Data below was obtained from coinmarketcap.com.

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Bitcoin is the only digital currency above $1000, a complete powerhouse in the crypto-market.

Investors like Husain Karam, 58, would argue that the cryptocurrency market is just as secure and stable as it is profitable. The Bitcoin owner and retired assistant engineer believes that cryptocurrencies will be the basis of a future financial medium.

“I don’t really understand how everything works,” Karam said. “I bought Bitcoins when they were worth nearly $1700, now they’re over $7000. That’s only in five months, I think. So why should I worry?”

The increasing shift towards digital transactions does not only highlight the possible death of physical money but also the rise of a virtual counterpart, cryptocurrencies. Karam pondered at that possibility, jokingly stating that world is ever changing even if he “may not be alive to see it happen”.

Dubai and Japan, both with encouraging economic growth, have already begun developing their digital currencies: EmCash and J-coin respectively.

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