THE IMPACT OF DIGITAL CURRENCY ON ECONOMY
OVER the last few years, the term digital currency or cryptocurrency has rapidly gained visibility in the public eye. Today, cryptocurrencies, led by Bitcoin, Litcoin, Ethereum and others, are taking the financial world by storm.
At the same time, there is widespread confusion that distracts from the overall effectiveness of cryptocurrency.
Educating users about such alternative forms of currency is important. In this letter, I will try to provide an outlook on cryptocurrency and how it is affecting the economic structure in the world today.
First of all, cryptocurrencies are decentralised, which means there are no regulations from central banks. Bitcoin presents a big possibility for speculation due to extreme highs and lows. On Jan 14, 2015, one Bitcoin was valued at US$170 and on July 24 this year, its value rose to US$2,772 (RM11,330). Now, it is worth US$14,805.21.
Bitcoin is too volatile. There have been many ups and downs in the value of Bitcoin, and this scenario is likely to continue. Bitcoin will change in value in the future. This makes it an easy target for speculative gains.
Ever heard of the word “dark web”? Dark web is the section of the web that is not accessible through search engines such as Google, Bing or Yahoo.
What we are given access to is the surface web, which is not even half of the existing Internet. The dark web is accessible only through special software like Tor Browser, which enables anonymous searching on the Internet.
The dark web is where you can find assassins, weapons, drugs, smuggling and other illegal activities. By using cryptocurrencies like Bitcoin, people can make illegal transactions without giving any information about themselves. Cryptocurrencies will ultimately result in increased cybercrime.
Earlier, all monetary transactions were enabled through central banks, directly or indirectly. Now, with the evolution of Bitcoin, the scenario has changed.
This revolutionary change in transaction handling has the power to change the economic structure. To ensure security, central banks and financial institutions maintain a record of transactions undertaken by people.
Now, with digital currencies, this economic power can be challenged by people. If adopted on a large scale, Bitcoin can lead to the politicisation of money.
There have been indications that Bitcoin can be used to launder money outside the country. Central banks across the world are worried about Bitcoin as an uncontrollable and unpredictable form of currency.
Cryptocurrencies are using loopholes in the banking system, leading to the banks’ inability to track economic activities.
Cryptocurrencies and cyberspace have emerged as a power unto themselves, putting a check on the activities of powerful governments.
Cryptocurrencies have led to the emergence of new markets. Currencies like Bitcoin and Ethereum have opened the gates to a new kind of market that, unlike the present money market, is controlled by no one.
Cyberspace will rise up as the managing body that will handle and maintain such markets. The near-zero transaction cost has made these currencies even superior to traditional money. What can be surely stated is that it is just the beginning and the number of possibilities is endless.
Lastly, cryptocurrencies can still affect the world economy even if they do not become currencies that everyone uses or understands. In the future, if Bitcoins become widespread, respected and legitimate, that will put pressure on everyone, central banks and banking institutions to accept the legitimisation of digital currency to maintain competitive advantage.
NURUL AZIERA AZAMAN
Universiti Sains Islam Malaysia