Cryptocurrencies are all the buzz right now especially following Elon Musk’s Saturday Night Live debut. Musk has been publicly tweeting about the cryptocurrency DogeCoin. His backing of this coin has made the coin rise in value in a very short amount of time.
Elon’s public display of the backing of digital currency doesn’t stop there either. He also started accepting BitCoin as a form of payment for his Tesla Vehicles. This raises a lot of questions about what cryptocurrencies are and how they are worth anything. This article will go into detail about what cryptos are and why they are becoming so popular.
Investopedia defines cryptocurrency as, “a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” Cryptocurrencies are decentralized and are not issued by any government entities, which makes them invulnerable to government interference. Crypto’s are also extremely easy to use. The transfer of money between two parties no longer requires banks to process transactions. Also, dealing with cryptocurrency is fairly easy and does not have many fees associated with it.
Now that we have discussed the basics of cryptocurrency, does any of it matter? Many people think that crypto might be the future, but there is a lot of thought that has to go into it.
First, for people to pay in crypto instead of your local currency means that there has to be a national switch. Meaning that the government creates their own coin for their country or that private coins have dominated completely. This sort of switch will not happen anytime soon. To build the foundations of digital currency we would have to dismantle the current fiat money system we use in the United States. To overthrow that sort of system would take time and chaos would ensue.
Second, the public would have to become educated. Cryptocurrency is not an easy thing for people to understand or necessarily be willing to accept with open arms. Many people do not even understand the money system that works now, it would be unreasonable to think that citizens would be willing to take the time to learn an entirely new system. Citizens and politicians would have to understand the implications of crypto, its risks, and what it means to have a truly digital currency.
Third, the scale at which we would be using the crypto would exceed the limitations of most coins at the moment. In the US we have the Federal Reserve. They calculate the amount of money in our system and replace it accordingly. They are able to control the amount of actual physical currency in our system and the time value of money (interest rates). On the other hand, we can take a look at the most popular coin (Bitcoin) and compare it to an actual currency system. There are a finite amount of Bitcoins in the world and it is capped at 21 million coins. That means once all of the Bitcoin has been mined, that is it. There are no ways to mine the coin, it can only simply be taken as payment. When this happens, the price of Bitcoin will rise. So if you think that everyone will be paying for products with Bitcoin, you can think again.
All in all, only the future will tell us what role digital currency will play in digital accounting and what it could mean for AP Automation. China has started to develop its own digital currency already and will be slowly implementing it into its monetary system. The world will be watching to see how it plays out, but in the meantime, many countries will most likely choose to take the safe route and rely on their fiat money system to take the way for exchanges.