Emerging technologies and the evolution of electronic currency is changing the world’s decades-old financial system. The future economy may lie with digital currency and not physical money.
Digital currencies have been around since the very early days of the Internet. In the early 1990s, several digital cash companies were founded, such as DigiCash. Digital currency is a form of money that is available only in digital or electronic form, it does not have a physical form and it is not a material asset such as cash or other commodities like gold or oil. It is intangible and can only be owned and transacted by using computers or electronic wallets connected to the Internet or the designated networks. Like any standard fiat currency, digital currencies can also be used to buy goods and pay for services, although their use may be limited to some online communities, such as gaming sites, gaming portals, or social networks. Other names for digital currency include digital money, electronic money, electronic currency, or cybercash. Electronic currency can be divided into different categories, for example, cryptocurrencies, virtual currencies, and Central bank digital currency, which is a digital form of FIAT money and exists purely in digital form.
Did you know the first BTC transaction was a pizza purchase?
First real-world Bitcoin transaction was made on 22nd of May, 2010 when Laszlo Hanyecz decided to pay 10,000 BTC for two large Papa John’s pizzas. What was 2 pizzas back then, is worth nearly $80 Million today.
Digital currencies all have their unique characteristics, much like physical currencies, and enable instant transactions that can be made seamlessly for cross-border payments, when connected to supported devices and networks. There are many benefits associated with digital currencies, such as the ability to pay quickly and lower transaction costs. Another way digital currencies can help an organization is to eliminate/reduce exposure risks by using them as a transport currency. Since payments are made directly between payers and payees, digital currencies can remove intermediaries, process steps, and infrastructure-related costs, unlike traditional payment methods that require banks or clearinghouses. The use of digital currencies can also help make the flow of funds easier and increase transparency.
Though digital currency is now a household term, its use and acceptance is still limited. The user base remains small relative to conventional currencies, the regulatory framework and tax treatments* are still evolving. Also a work in progress, the infrastructure to support digital currency is still being defined and developed. Currently, digital currencies are not accepted by banks, so individuals or organizations cannot earn interest on them. There are also risks associated with digital money, such as security, currency volatility, and the identification of a payee. Some areas of uncertainty, such as regulatory compliance and customer identification, along with risk, limit the adoption of digital currencies in the payments industry. Many existing digital currencies have not yet been widely used and cannot be easily used or exchanged. As a rule, banks do not accept or support digital currencies. There are concerns that cryptocurrencies are extremely risky because of their high volatility and potential for pump and dump schemes. Regulators in several countries have warned against their use, and some have taken specific regulatory measures to discourage crypto users. Non-cryptocurrencies are all centralized, where the currency is controlled by a singular entity. They can be stopped or seized by the government at any time. The more anonymous currency is, the more attractive it is to criminals, regardless of the intentions of its creators.
The removal of physical money from our economy is feasible from a purely technological perspective. However, additional investment in equipment and cards would be required to buy even the simplest of things. Nevertheless, the future of money may be a digital version of cash, which could hamper the currency system that the world has known for decades.
Please see our Cryptocurrency and Taxes article to learn more basic information concerning crypto taxation and what to watch out for when reporting your cryptocurrency activity.