Cryptocurrency is usually referred by economists as a bubble because it can burst at any point in time. The bubble will break when the value of cryptocurrencies come down, phenomenally. Even though these alternate coins have drawn a lot of investors to their side, uncertainties about their future is a major stumbling block that has created distrust among the digital currency users. The price will fluctuate so wildly that if today you can buy a couple of chocolates with it, you can buy a gold coin the very next day. The instability in the value of these cryptocurrencies makes it unfit to be a national currency.
Unlike cryptocurrency, the value of a real currency doesn’t fluctuate very often. They are backed by the respective governments and the central agency regulates the fluctuations, effectively, from time to time. The fiat currency is used as a medium of exchange, whereas, these alternate coins are more as stocks.
The ancient currency system lost its reputation because of the continuous increase in the inflation rate. These currencies have gained significant acceptance in Venezuela and Zimbabwe. They are being used as a medium of exchange for completing transactions at a lightning speed and the value of these coins don’t fluctuate quite frequently. Thus, cryptocurrencies became a lucrative form of investment, gradually. They are, now, used as a medium of exchange and for storing assets.
Unlike the situation in these two countries, other countries have raised doubts about the acceptance of these virtual coins as the national currency. The main downside of this blockchain technology is that every minute, only 7 Bitcoin transactions can be completed whereas 65,000 transactions can be completed per minute in the case of a credit card.
The second argument put forth against blockchain technology is that it maintains too much secrecy to protect dubious activities. Since a transaction can be completed without revealing the true identity, it promotes illegal transactions, in effect. Monitoring illegal activities are very difficult because of the complete secrecy in this system. Furthermore, different cryptocurrencies use different business models that complicate the working of cryptocurrencies.
In spite of the prevailing distrust for this virtual currency, there has been a favourable swing in the opinion of financial institutions all over the world. The US federal reserve has shown a favourable stance for this e-money. They have passed a number of legislation to prevent illegal activities, creeping into the economy. Since the monetary transactions in the banks are completed digitally, these days, many experts opine that there is a possibility that cryptocurrencies will replace fiat currency, in the near future.
David Yermack, a professor of finance, is of the opinion that within the next few years, this technology can be adopted by the Federal reserve, successfully. He hopes that the adoption of these alternate coins will not turn out to be a fool’s errand if proper checks are imposed on them. This can be made possible by passing various rules and regulations whenever required.
In short, these currencies continue to attract people because of the unprecedented increase in the value and the growing distrust of paper currency, recently. Even though there was a scuffle against these virtual coins, initially, it is slowing gaining the attention of the people all over the world.