Real-World Cryptocurrency Impact and Potential

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Real-World Cryptocurrency Impact and Potential

Key Takeaways

  • With cryptocurrency, international business people or parties are able to make timely "one-on-one exchanges online without the complications and added fees that traditionally come with international currency exchanges that involve third parties."
  • Cryptocurrency has the potential to help the large population of unbanked or underprivileged people.
  • There are relatively benign guidelines currently in place in the cryptocurrency space. Going forward, "law enforcement agencies could decide that bitcoins are a 'giant money-laundering scheme,' and enact more stringent regulations that would diminish the currency’s value."

Introduction

In this report, we have provided insights into the current and potential positive and negative impacts of cryptocurrency.

Current Real-World Impact of Cryptocurrency

Wins

1. Little or no Processing Fees
  • Transactions using digital coins eliminate any exchange fees or transfer charges associated with fund transfer.
  • This is because the miners are compensated by the network.
  • "Unlike credit cards and other traditional forms of payment, cryptocurrencies often have no processing fees. This is because transactions are facilitated through the cryptocurrency’s public network on what is known as a blockchain. Transactions are recorded on the blockchain chronologically, and users can create, verify and enforce transactions without an intermediary or central authority".
2. Easier International Exchanges
  • With cryptocurrency, international business people or parties are able to make timely "one-on-one exchanges online without the complications and added fees that traditionally come with international currency exchanges that involve third parties."
  • Transfers on crypto don't require all the checks and balances other financial organizations and payment portals undergo to complete transfers, especially when it comes to international transfers. This makes transactions on crypto faster and easier.
  • Cryptocurrency also reduces fraud associated with international transfers.
3. Increased Payment Options

Losses

1. Cyber Security
2. Price Volatility
  • Due to the high level of volatility in price in the cryptocurrency space, the ecosystem has been described by Warren Buffet as a bubble.
  • The price/value of cryptocurrencies can change drastically over a small period of time.
  • An article by Finance Monthly reads: "there is a concern here, but you can overcome it by linking cryptocurrency values directly to tangible and intangible assets (as some new players are doing with energy derivatives or diamonds)."


Forecasted/Potential Real-World Impact of Cryptocurrency

Wins

1. Potential to Help the "Unbanked"
  • Cryptocurrency has the potential to help the large population of unbanked or underprivileged people.
  • Generally, people with access to the internet are more than those with access to banks or other currency exchange systems.
  • Speaking to Fox Business News on this potential, Swanepoel was quoted saying: "cryptocurrency is uniquely positioned at the apex of technology and finance. It has been lauded as a potential game-changer for society, poised to eliminate corruption, bank the unbanked, and redistribute wealth in a way that’s fairer and more equitable."
2. Increase Crowdfunding
  • Raising money through online platforms has been a recent trend largely due to the transparency associated with the process.
  • Platforms such as cryptocurrency make it possible for people to publicly ask for funds and explain why.
  • "Crowdfunding with a dedicated blockchain wallet will keep the total amount of donations open to the public. In the same manner, it will allow the fundraisers to avoid fees from third-party platforms without sacrificing the donors' trust."
  • Also, using digital wallets will ensure that all parties can see how much funds have been generated, transparency.
3. Cryptocurrency to Make Paying Employees More Convenient
  • Cryptocurrency could make paying employees from different countries easier and more convenient. "Imagine having to convert your dollars into dozens of international currencies to pay remote employees."
  • The fees associated with changing currencies when it comes to international payments are even more of a burden than actually making the cross-border transaction.
  • "With cryptocurrency, instant transactions across borders with minimal-to-no fees are now a reality. Since Bitcoin transactions are public, all parties can view the transaction details and immediately know the status."
  • Cutting out bank charges is a win-win situation for both employer and employee which is good for the workforce.

Losses

1. Increased Regulation
  • There are relatively benign guidelines currently in place in the cryptocurrency space. Going forward, "law enforcement agencies could decide that bitcoins are a “giant money-laundering scheme,” and enact more stringent regulations that would diminish the currency’s value."
  • On the regulation of the space, Warren Buffet was quoted saying: "It doesn’t make sense. This thing is not regulated. It’s not under control. It’s not under the supervision [of] any… United States Federal Reserve or any other central bank. I don’t believe in this whole thing at all. I think it’s going to implode.
  • Experts predict that until the space is regulated by the government, investments in cryptocurrencies will be riskier.
2. Scalability
  • "Many companies have platforms and programs built out for their specific product and/or service or use an existing service that can be customized to some degree, however, scalability is an issue that many companies eventually face."
  • While there is a rapid increase in the adoption of digital coins, payment giants such as VISA still process many more transactions daily than digital coins.
  • Transactions using digital coins are regarded to be complex, difficult, and definitely not seamless.
  • Therefore, unless the infrastructure that powers these technologies gets massively scaled, digital coins cannot compete with players like MasterCard and VISA.
  • However, solutions such as lighting networks, starking, and sharding have been proposed by cryptocurrencies to deal with scalability issues over time.
3. Anonymity
  • Transactions on crypto are held in a public ledger with information on the user and the transactions publicly available. However, the name and location of the user are encrypted.
  • Should the space become regulated in the future, the anonymity of users will make it difficult for cryptocurrencies to comply with any future government regulations on customer identification or fraud protection.

Research Strategy

We have leveraged insights provided by the most reliable public media sources, and from expert opinions and consultancies such as Forbes, Fox Business News, CBIZ, and others to provide insights into the current and forecasted positive and negative real-world impacts of cryptocurrency.
Sources
Sources