How Cryptocurrency Will Impact the Future of Money as We Know It Various crypto products get deeper into our lives. What's their place in the world of finance now, and what to expect in the near future?
By Vladimir Gorbunov Edited by Micah Zimmerman
Opinions expressed by Entrepreneur contributors are their own.
The creation of cryptocurrency has brought a revolution to the financial market. Without any physical equivalent, a huge infrastructure was created in which billions of dollars were invested. Of course, it doesn't end there. Digital currencies will take their place in economic history more than once.
There are severe preconditions for that, but they also have weaknesses. Let's examine if we can expect crypto projects to replace the traditional banking system or if this is just an ever-optimistic vision.
Current crypto position in global finance
In most areas, traditional financial tools are still prevalent. Payments with cryptocurrencies are very complicated because there is insufficient infrastructure. Transfers to bank cards are available, but paying for purchases with crypto funds at the store is still impossible. The corporate segment is loosely involved in the crypto market, and people keep using classical bank loans and receiving a salary in the form of fiat money.
But that is the point of the enormous potential for the development of crypto, especially since it has several undeniable advantages:
- Decentralization entails a lack of boundaries for financial operations and customer service, wherever they are. This is the most significant difference between the crypto market and the classic one, where some local restrictions often bind companies.
- Crypto operations pass almost instantly, and the cost of billions of dollars in transfer can be cents. And all this without compromising safety!
- There is a whole layer of people who already use cryptocurrency as storage for savings. One can keep money in a bank account, but there may be restrictions on its use. Keeping the cash could be a problem when exporting funds to other regions. Cryptocurrencies allow one to hold and manage money wherever the person is located.
- It's not yet possible to completely get rid of anonymity. This is at the same time, a strength and a weakness. A person can make transactions and maintain confidentiality in good order. But it may also be used by organizations raising funds for illegal operations. Conditions will be tightened; companies will be regulated. But there will still be space for actions that are difficult to track.
Related: 5 Tips for Using Cryptocurrency in Your Small Business
Such a much-needed regulation
It took the crypto market ten years to form. While it wasn't huge, regulators didn't get much attention. When the market has grown, some concerns have been raised. Almost anyone can create a website, pretend to be a crypto bank, then take all the money and just dissolve.
Not so long ago, the market suffered a collapse of Luna, Celsius and even FTX. People lost more than $100,000,000,000! Cryptocurrencies stopped being just toys. Therefore, regulators must keep track of assets and balances, how companies use them, and in which countries such services are provided. Сentralized services have legal entities, an understandable product in the territory of a particular region. Decentralized services may exist without a legal entity at all.
The crypto industry is set to be very much regulated in the next 3-4 years. Some companies will leave the market, and the remaining ones will be even stronger. There will be standards — in the first place — for central banks, various depositaries and requirements for opening an account and mandatory declaration of cryptocurrencies. A lot will happen in the decentralized part of the market, but a little more slowly because this sphere is much smaller in volume.
As long as it's currently an unregulated arena, there are so many doubts and prejudices. But companies and people are going to realize in which system of coordinates they live and be legally able to keep, exchange, sell and issue cryptocurrencies.
Related: 5 Things to Know Before You Invest in Cryptocurrency
Skepticism and how to beat it
Most people perceive cryptocurrencies as an instrument to increase revenue — the truth of this may be growing quickly. But the market is much broader than tokens. Speaking of cryptocurrencies, here's how they can be divided:
- Stablecoins that are pegged to fiat currencies: euro, dollar, yen, and so on.
- Cryptocurrencies that are tied to the tokenomics of some products. This is comparable to the release of the company to IPO: when it goes public, the value of shares depends on the company's financial and production indicators. The better results, the more sales of tokens and the price.
- Digital assets that are pegged to any real objects. It's so-called tokenization. Everything may be tokenized: art, metals, properties, etc. This is indeed an opportunity for centralized sales of products that couldn't be split or sold before.
The same regulation will help to set aside skepticism about all the crypto mentioned above products. And when people realize that everything is strictly within the law, no funny business, they will begin to trust the market more.
Related: 5 Bear Market Lessons From a Crypto Entrepreneur
Expected changes in the coming decade
Over the next 10-15 years, cryptocurrencies will play a crucial role in most of the world, probably in the following directions:
- International settlements. Cryptocurrencies have a high level of transaction reliability, primarily through blockchain technology. It has already prevented many adverse events due to the possibility of rolling back operations. There are still many other technologies that are being created for more safety. So, it's highly expected that transactions will become more convenient, transparent and less expensive.
- Сreating a CBDC. More than 20 countries already produce central bank digital currencies and follow a path to complete untethering of classic money. Thus, wide-ranging opportunities open up to expand control for states and banks worldwide. Most of them will switch to using CBDC and blockchain in conducting transactions. As for ordinary people, it's impossible to say unequivocally if it's good or not.
- Replacement of traditional banking. The rapid development of crypto technologies ensures the provision of services by companies worldwide and the ability to become financial institutions for many of them. So far, such companies don't provide services related to lending, deposits, various crypto accounts, and transactions. There are a lot of platforms with millions or even tens of millions of users. But, if we look at total cryptocurrency's penetration, obviously that it's a privilege of just 3-4% of the population. Banks will go over to the side of crypto technologies or leave the market.
The active audience of the crypto market is quickly growing, and there is no button or 'reverse gear' that can stop its development. However, you must not expect that regular money will cease to exist several years later. But it is quite real that our children will increasingly use cryptocurrencies in their youth.
