Are Cryptocurrencies a Fad or Will They Change Banking As We Know It?
There’s been a lot of buzz surrounding cryptocurrencies, Bitcoin and blockchain technology. While many are interested in investing in Bitcoin, is it just a fad or are investors onto something? Let’s take a look at the Bitcoin craze, it’s origins, how it relates to blockchain technology and the future of cryptocurrencies.
The Recent Bitcoin Craze
Click on any financial app and there are likely headlines surrounding Bitcoin. Whether a person is a novice investor or someone who’s trading all the time, they’ve probably heard about Bitcoin reaching nearly $20,000. But what is Bitcoin and why has it become so popular overnight?
Bitcoin (BTC) is a technology-based cryptocurrency derived from cryptographic codes that uses non-manageable algorithms. It’s only been around since 2009, when it was started by a man named Satoshi Nakamoto as a way to send small electronic payments peer to peer. Bitcoin, as a cryptocurrency, is not tied to a particular country, which means it’s deregulated. Retail businesses have taken interest in it because there are no associated banking fees. It’s been suggested that there are only about 14 million Bitcoins in circulation.
Blockchain Technology and Cryptocurrencies
Cryptocurrencies are new ways to use currency. They are virtual cash, not to be confused with mobile wallets. Cryptocurrencies use blockchain technology, which is a ledger that’s decentralized and allows currency to be exchanged. There are about 3,000 cryptocurrencies to date, although the number is still growing.
The rise in demand for cryptocurrencies and the reason for all the attention is that cryptocurrencies don’t require banks and are deregulated. To own a cryptocurrency like Bitcoin only requires that a buyer visits a site like Coinbase and sets up an account. Once they buy their Bitcoins, they are stored in virtual wallets, but this is not FDIC insured. The cloud wallets remain vulnerable and can be subject to hacking.
While the SEC has been monitoring Bitcoin’s high volatility due to its inherent (rather than intrinsic) value, investors have been keeping track of it as well. Goldman Sachs has even decided to set up a cryptocurrency trading desk by June 2018, and is working out now how to meet future client demand. Although only about 6 percent of consumers understand cryptocurrencies, based on PwC data, there’s good reason to consider investing.
While cryptocurrencies don’t require accounts and are not hack-proof, they have still experienced fewer hacking incidents than traditional banks. As recent hacking incidents and DDoS attacks have shown, banks continue to be susceptible to a variety of threats. Banks also require credit applications, loan documents and other data that’s time-consuming. For instance, checks take time to process and can be compromised. Because cryptocurrencies can send money from person to person or to a business almost instantly, they are gaining in popularity and may one day be used with electronic contracts. There are currently cryptocurrency miners working on implementing cybersecurity protocols to ensure cryptocurrencies like Bitcoin can eventually be used for all transactions.
What This Means for the Future of Banking
As more consumers and investors take interest in Bitcoin, cryptocurrencies and blockchain technology, this curiosity may eventually change the future of banking. There may be fewer banks and ATMs, as well as a decreased need for paper currencies, checks and even credit cards.
As Bitcoin popularity increases, retailers and potential investors are considering their options, especially as blockchain technology continues to be a way to exchange money with fewer transaction-related fees. For now, though, attention remains on Bitcoin as brokerage firms like Goldman Sachs start prepping their trading desks to trade Bitcoin and other cryptocurrencies. Countries like China, Japan and Australia are already considering regulations. Stay tuned!