In today’s age the popularity and use of Cryptocurrency is ever growing. In America particularly as well as the UK Crypto is becoming more well-known to younger generations which has heavily increased its usage. Due to its success many individuals believe that they should prepare for a digital financial future. Many people believe that Cryptocurrency represents the future of finance and could have a significant impact on the traditional financial system.
What is Cryptocurrency?
Cryptocurrency is known as a digital or virtual currency that uses cryptography for security and operates independently of a central bank. Cryptocurrencies are decentralised meaning they are not controlled by any financial institution or government. However instead transactions are recorded on a public ledger referred to as a blockchain. A blockchain allows any transfers of Crypto to be secure and transparent transfers of value. It also allows for fast and low-cost transactions with the decentralised nature of cryptocurrency making it more resistant to censorship and fraud which are significant issues with traditional financial systems. The best-known cryptocurrency is Bitcoin which was created in 2009. The creator of Bitcoin was called Satoshi Nakamoto, he created a supply of 21 million bitcoins to be mined. In 2021 Bitcoin reached its highest ever value as it exceeded over $65,000. When Bitcoin surged in 2021 it further gave exposure to Cryptocurrency and the potential value individuals can gain from investing into it. There are many other less known Cryptocurrencies such as Ethereum, Ripple or Litecoin.
Decentralised Nature of Cryptocurrency
Another key feature is of Crypto is the peer-to-peer nature it has, which enables users to conduct business directly with one another without the need for middlemen, which is yet another important feature. The costs of traditional financial transactions like wire transfers, currency exchange, and other services are greatly reduced as a result of this. Additionally, Cryptocurrency provides users with enhanced security and privacy. Encrypted and recorded on a public ledger, the blockchain ensures a high level of transparency and accountability for all transactions. Additionally, users have direct control over their own private keys, removing the need for a dependable third party.
Decentralized Finance (DeFi)
Applications for decentralized finance (DeFi) have emerged as a means of providing financial services without the use of traditional intermediaries, such as lending and borrowing, insurance, and remittances. This has the potential to significantly boost financial inclusion and accessibility, particularly in underbanked areas of the world. Blockchain technology, which outperforms conventional financial systems in terms of efficiency, transparency, and security, is the foundation upon which DeFi applications are built.
Rising popularity of Cryptocurrency
Recent events like the US 2022 midterm elections have shown how economic issues are on the forefront of people’s minds. Economic issues dominated recent discussions and voting behaviour. Due to this a national survey was opened in America to show what was concerning the economy, this survey showing how Crypto is rapidly becoming increasingly more important in the electorate. The survey found that more than half of Americans (53%) agree that crypto is the future of finance. Not only this but over 50% of both Democrats and Republicans agree that crypto is a growing issue of importance but also agree for the need of appropriate regulation. This figure was further supported by the survey showing nearly four in five Americans (79%) feel there needs to be clearer regulation of Cryptocurrency.
Issues with Cryptocurrency
While Cryptocurrency and DeFi have the potential to greatly disrupt the traditional financial system, there are also significant risks and challenges associated with this technology. Cryptocurrency is highly volatile and can experience rapid price swings, making it a risky investment. Additionally, the regulatory landscape surrounding cryptocurrency is still developing, and there is a risk that regulators could take actions that could harm the growth and development of this technology. Another significant issue people aren’t currently pleased about is the fact that Crypto has a negative carbon footprint with 34% of respondents from a survey agreeing that reducing Cryptos carbon footprint was very important to them.
Overall, although Cryptocurrencies and blockchain technology have the potential to significantly alter the financial system, it is still too early to determine whether they will completely replace conventional finance. DeFi and cryptocurrency, on the other hand, are unquestionably here to stay and will significantly influence the financial industry's future. Before making an investment in DeFi applications or cryptocurrency, as with any new technology, it is essential individuals thoroughly investigate and comprehend the potential benefits and risks before making decisions.