Cryptocurrencies are digital currencies used for the exchange of goods or services. They were created as a result of the 2008 financial crisis for internet transactions; however, nowadays, not only electronic companies have accepted cryptocurrencies as forms of payment, but some companies such as Starbucks, Burger King Germany, Reeds Jewelers, Virgin Galactic, among others, also do so for their profits. Jason Simon, a cryptocurrency expert with extensive experience in the space, explains the relationship between the global economy and these famous digital currencies.
These digital currencies impact the global economy, so it is important to explore the relationship between both concepts. There have been several clear examples in which cryptocurrencies have represented an alternative for the economy. On the other hand, one also has to keep in mind certain things that are not so good, such as their volatility.
“Cryptocurrencies are an efficient and secure way to carry out operations, as they are based on the principles of cryptography that, utilizing a blockchain, allows to keep a perpetual record of the transactions made,” Simon explains.
The blockchain is a public registry where all the operations of these digital currencies are kept. However, although this ledger allows any user to trace all transactions made by all computers in the network, the information of the people involved is protected. Likewise, the security of these currencies is not only due to encryption but also to verification since the rest of the users validate that the transaction can be carried out correctly.
Cryptocurrencies have been seen as a possible alternative to the current monetary system largely because their technology and multiple advantages have been considered as a determining factor to transform how transactions are carried out around the world. One of the main advantages of cryptocurrencies is that they do not require an administrator; for example, they do not depend on governments, banks, or any institution to function.
Simon adds, “Many people have always asked me why it is important for the economy to be decentralized. I always make it clear that mainly because it allows independence from economic downturns and crises, thus obtaining the highest market price so far. Jointly, depending on banks and governments is costly for society, due to two main reasons. The first is that in banks, these transactional systems are very expensive, so having cryptocurrencies reduces commissions and eliminates interest in the operations performed. Secondly, the government cannot distort the accounts by printing more money, thus causing inflation.”
In this sense, cryptocurrencies avoid the main cause of inflation in traditional currencies because their issuance is reduced over time and never exceeds 21 million. Another advantage of this digital currency is that they provide an opportunity for people to “save their capital” and keep it intact, besides being flexible operations that provide great liquidity.
This is why these digital currencies have quickly gained popularity and can shake the foundations of the world economy. To exemplify, their acceptance has been such that, as a mitigation of the economic consequences brought about by the Brexit (the separation of the UK from the European Union), some citizens of the UK bet on these virtual currencies to keep the value of their capital intact. The same thing happened to citizens of China in mid-2017 since their market had been affected and the value of the yuan was drastically reduced.
Simon states that cryptocurrencies are an alternative, safe and efficient way to exchange goods or services that positively affect the world economy due to their decentralization, high liquidity, and flexibility. However, it is necessary to know this market before entering it in order to take advantage of the benefits of this electronic currency.
Likewise, it must be clear that security is always relative; although virtual currencies have a lot of security, nothing is one hundred percent free of vulnerabilities. It’s also important to point out that the value of these virtual currencies is volatile and that, as with traditional currencies, there are external factors that cannot be controlled, so that one day you can be earning a lot, while the next day you can be losing a lot.