Introduction
Cryptocurrency is a digital asset designed to act as a medium of exchange. It uses cryptography to secure and verify transactions and control the creation of new units.
The idea of cryptocurrency has been around for decades, but its popularity has skyrocketed in recent years. This begs the question: will cryptocurrency become the new global currency? Let’s find out.
Why Cryptocurrency was Created
The first cryptocurrency, Bitcoin, was created by Satoshi Nakamoto to improve the way we transact money. According to the Bitcoin whitepaper, Satoshi wanted to create “A purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.” ⇒ https://bitcoin.org/bitcoin.pdf
The aim is to eliminate the need for a trusted third party because Satoshi believes that no single human being can be trusted to be in the custody of financial operations without the risk of being compromised.
Since the launch of Bitcoin, many have bought into that idea by buying into it and other cryptocurrencies that came after Bitcoin. This has led to exponential growth, and many believe that at this pace of growth, Bitcoin or cryptocurrency at large, will become the new global currency.
The adoption of cryptocurrencies has been greatly influenced by the several benefits they offer users. Some of these benefits include;
- Transactions are secure,
- Fast transactions
- low-cost.
- It is decentralized and not subject to government interference.
- It is also private, as transactions are pseudonymous.
- Investment opportunities.
Cryptocurrency also has the potential to provide economic opportunities to people in developing countries who may not have access to traditional banking services.
Limitations of Cryptocurrency
While cryptocurrencies offer significant advantages over the traditional FIAT system, they also have some limitations that have hampered their widespread adoption. Some of these limitations include;
- Lack of regulation
- High volatility
- Fraud and Manipulation
- It is not yet widely accepted by merchants and consumers.
These challenges must be addressed if cryptocurrency is to become a viable global currency.
The Big Challenge
The government: The government is the biggest obstacle to the global adoption of cryptocurrency as a means of exchange. The government’s primary job is to be able to control its citizens’ finances and several other aspects of their lives. The decentralized nature of cryptocurrencies primarily limits the government’s control. So, it’s no surprise that governments are not eager to throw their full support behind cryptocurrency adoption.
The Creation of CBDC
The governments of the nations of the world are currently pushing for the CBDC, which means CENTRAL BANK DIGITAL CURRENCIES in full.
The idea is to use blockchain solutions to improve the existing FIAT monetary system. This will be fully regulated and examine many security risks associated with cryptocurrencies.
CBDCs are just as stable as normal currencies but not decentralized, which means the government is in full control.
In summary, with CBDCs, you are safer but under the control of the government, while with cryptocurrencies, you have absolute control of your assets but will bear a certain level of risk.
CBDCs are set to be the biggest competitors to cryptocurrency’s global adoption.
Energy Problems: Another crucial problem the cryptocurrency market faces is high energy consumption. The energy cost of mining Bitcoin is very high in most regions, and miners often suffer losses. This discourages a lot of investors who want to venture into mining Bitcoin. Though not all cryptocurrencies consume energy like Bitcoin, energy remains a crucial problem as Bitcoin is the biggest cryptocurrency by market capitalization.
Bitcoin consumes about 160 Terrawatts-hrs of electricity annually, so if Bitcoin were a country, it would rank among the top 25 countries by electricity consumption.
What’s even more scary for Bitcoin is that as more miners join the network, the mining difficulty increases, which means the energy consumption for mining will likely continue to grow.
This has alarmed global organizations and governments to launch a campaign against Bitcoin mining, encouraging more sell-offs and discouraging adoption.
So far, there’s no ultimate solution; however, it can be managed greatly if all mining farms are mandated to use renewable energy.
Scalability: The blockchain’s efficiency, often referred to as SCALABILITY is a major challenge.
For context, Bitcoin has a TPS of 7 transactions per second, while Ethereum has about 20. This means that Bitcoin can only process about 600,000 transactions daily, and Ethereum will do about 2 million transactions daily.
So when the millions trooped in, we experienced serious lag in the network, delayed transactions for up to 3 days, and extremely high gas fees, which scared off a lot of investors.
There’s good news, though. Blockchain developers have created new solutions known as the layer-2 scaling solution to enhance the efficiency of blockchain to accommodate more daily transactions.
The success of layer-2 projects will play a key role in the next wave of cryptocurrency adoption.
Security: security is a huge challenge in the cryptocurrency sector. A lot of bad actors deploy several means to steal investors’ assets in this space. These security threats have discouraged many from investing in cryptocurrency.
Being largely unregulated, these bad actors, most of the time, go scot-free. Security of digital assets is a key aspect that requires urgent attention in order to keep scammers in check. To achieve this, governments and well-meaning individuals must put resources down to find workable solutions to regulate this sector. Until this is done, many folks will remain skeptical about investing in cryptocurrency.
Conclusion
Cryptocurrency has been designed to solve the underlying trust issues associated with the regular fiat system of exchange; hence, cryptocurrency has seen massive adoption. Many now believe that it could possibly replace fiat in the near future, but there are still many challenges to overcome in order to be able to achieve this milestone, such as Regulations, the emergence of CBDCs, Security challenges, scalability challenges, energy challenges, and many more.
There is still a long way to go; only time will tell if cryptocurrency will become the new global currency.
