What is Cryptocurrency?
Cryptocurrency is a form of digitised money in which transactions are verified and records maintained by a decentralised system using cryptography. Most perceptions on this currency are of ‘black market deals’, the ‘dark web’ and overall illegal activity, purely because there is no government or country in control of the currency, therefore, effectively no laws governing the use of it. The currencies exist only in digital form, meaning there are no coins or notes, and transactions are recorded on blockchain software. This is easiest described as a decentralised ledger recording the journey of an asset. This means it is completely transparent as to the journey of an asset, however as the hashing it uses links with an electronic address instead of personal information, any payments made via cryptocurrencies are highly unlikely, if not impossible, to be traced back to you.
Much like for normal currency we have the Euro or Dollar, for cryptocurrency there are many different types and therefore, there are different exchange rates for each type. Where, in the pandemic, some currencies have faced decline in value, cryptocurrency has not. On Wednesday 13 January 2021, Bitcoin, perhaps the most well-known type of cryptocurrency, surged 9.9% meaning the value of one single Bitcoin on that day was £28,857.60 GBP.
In recent times, the notion of cryptocurrency has been expressed by companies and businesses that we all know of. The question is why, and what this will mean for those companies and their consumers alike.
The Diem Dilemma
Facebook, through their co-founded association ‘The Diem Association’, have decided to launch their own form of cryptocurrency, newly labelled ‘Diem’, a change from its previous name ‘Libra’. As opposed to creating a new currency altogether, Diem will be a one-to-one transaction if converting a centralised currency. If this is the case, and the only difference with the currency would be the digital aspect of it, then why is this important?
Facebook, along with WhatsApp and Instagram which are owned by it, boasts 3.21 billion users per month. With 3.21 billion users in a global population of around 7 billion, Facebook already represents almost half of the entire planet in total. If they were to generate any money in sales from their users, then the revenue that Diem would represent would soar. If this price rose to the millions or billions, there is a risk that Facebook would become so powerful that they could monopolise the whole industry of social media or tie contracts to the performance of the currency, which is a dangerous power for one organisation to hold – a company with sole monetary sovereignty. In reality, this is probably unlikely as Facebook wouldn’t actually have direct and complete control over the Diem – it is easiest to look at their involvement as a shareholder in the association. However, should they invest more heavily in the currency due to many of its original supporters of PayPal, Mastercard and eBay dropping out of the project, this could very well become the reality.
The project now waits for regulatory approval before it can be launched. Where the aim is to have it backed by several currencies eventually, it will begin as just a one-dollar backed coin and will largely be centrally controlled. Where other cryptocurrencies, such as Bitcoin, benefit from the decentralised aspect, this will likely mean that those users who do currently use Bitcoin for this reason, will not be drawn to the Diem. Many of the intricate details of the cryptocurrency are still unknown, and thus the world will have to wait until its launch to find out exactly how easy to use, powerful or economically volatile it could be.
Debit and Credit Crypto-Cards
It may be relatively unknown, but cryptocurrency is already in the market in the form of credit cards and rewards systems. For example, Visa has partnered with cryptocurrency start up BlockFi to offer Bitcoin rewards on purchases, as opposed to the usual points-based system which results in cash back or air miles.
In addition, Visa have also designed cards, from which can use Bitcoin to purchase everyday items. This works as a normal debit card would if you were to go abroad, in the way that the card converts the users’ Bitcoin assets into whichever currency is being used at the time of purchase. Mastercard have also created a ‘BitPay’ card which does a similar thing. This shows that two of the major credit and debit card companies are recognising the importance of cryptocurrency and how much more relevant it is, especially due to the financial value of Bitcoin. The obvious issue with their cards for cryptocurrency users is that once the funds have been transferred into the account and used to pay for items, it would no longer be decentralised, as it would turn into dollars, euros or sterling, which are centrally controlled currency. It would also take away the anonymity which users benefit from, where receipts, bank statements and card holder information would be generated from payments. In this way, these cards as well as the Diem will not be attractive for those users who choose to use current cryptocurrency due to the anonymity.
Is There a Conclusion?
In short, I believe the answer is no. Despite the technological advances that are being made in the world, especially in the commercial market with regards to cryptocurrencies, there is still so much that is uncertain. The Diem may never be approved, Facebook may never gain monetary sovereignty, and more domestic and regulated cryptocurrencies may be created which attract average individuals like you and me. In five to ten years’ time, the digital landscape will probably be a completely different picture. With the economic fallout of Covid-19 already upon us, who could say for certain that cryptocurrencies which have not faltered but have increased in value, will not be considered a financial opportunity and option for struggling states who would never have considered such in a normal climate.
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