Introduced in 2009, Bitcoin has gone on to become regarded as legitimate legal tender. Traditional paper-and-coin currencies are still the norm. But in this digital age, digital currencies, officially known as cryptocurrencies, can no longer be dismissed as a passing fad.
Digital currencies can now be used to purchase goods and services from forward-thinking e-retailers that are on the cutting edge of this emerging trend. Indeed, digital currencies are poised to grow in popularity as consumers and corporations come to appreciate the benefits of new currencies that are not tied to specific countries or governments.
But what is the future of digital currencies? Read on for a look at what digital currencies are, why there’s so much hype around them, and where the trend could be headed in the future.
Digital Currencies: What Are They, Really?
Digital currencies don’t physically exist in the sense that you can’t pull out a Bitcoin or any other cryptocurrency from your wallet or purse and hold it in your hand. Yet, cryptocurrencies, some of them at least, are worth big money. Case in point: A single Bitcoin was worth a high of almost $20,000 as of mid-December 2017. Bitcoin not only is one of many cryptocurrencies, but also is the most well known of the bunch. In order to steer clear of value dilution, there is actually a cap on how many Bitcoins can be generated by sophisticated blockchain technology that underpins the Bitcoin network. On the heels of Bitcoin’s success, other cryptocurrencies built on decentralized networks of the peer-to-peer variety have sprung up. One source notes that the six most important digital currencies other than Bitcoin include Litecoin, Ethereum, Zcash, Dash, Ripple, and Monero.
Why the Hype?
There are a number of reasons that account for why digital currencies are front and center. For example, the currency is not tied to any government, which means that it is not subject to regulations in the way that, for instance, the U.S. currency would be subject to oversight. As well, anonymity is built into the system so that people can use cryptocurrencies confidentially. Other benefits that underscore the hype surrounding Bitcoin and other digital currencies include:
- Lower Transaction Fees. Since there’s no middleman player involved in blockchain technology, transaction fees could work out to be lower than would be the case if a third-party financial services institution were involved.
- Quicker Settlement: Blockchain networks transactions can be settled sooner than transactions on traditional networks since financial services entities don’t typically have round-the-clock hours to settle transactions. Blockchain technology is such that transaction verification can usually be done relatively quickly and, in some cases, right away.
The Future of Digital Currencies
Expect digital currencies to become more popular going forward. You might not have thought of it, but you probably already transact with digital currencies without even realizing it. For instance, credit card points, airline miles, and hotel booking points are basically digital currencies that you can redeem for discounts or free stuff. These digital currencies are not government backed. Instead, they represent guarantees that the digital currencies possess value, which they certainly do. Because they are not tied to specific governments, they are not subject to government policy decisions, inflation, conflict situations, and other things that can often destabilize traditional currencies. Some sources suggest that there are over 1,300 digital currencies in existence. While it’s probable that some of them will go by the wayside in the years ahead, it’s also possible that some of them will continue to develop into viable, widely held digital legal tender. This will particularly be the case as consumers continue to gravitate to cryptocurrencies to buy goods and services, and as businesses continue to get on board with cryptocurrencies by, among other things, raising digital currency via initial coin offerings (ICO).
When Bitcoin debuted in 2009, no one would have thought that it would have gained the sort of traction that it has. The future will all but certainly include digital currencies such as Bitcoin and front runners such as Litecoin, Ethereum, Zcash, Dash, Ripple, and Monero. But questions about which ones will come out on top and how pervasive the digital currencies will become are still in the realm of speculation.
