Most of us have heard of Bitcoin and maybe blockchain, and NFTs are the talk of the internet. A growing percentage of us even own cryptocurrency. Bitcoin, while the most popular cryptocurrency, isn’t the only digital asset in the market. Litecoin, a cousin, of sorts to Bitcoin and Ethereum, are also popular cryptocurrencies. But what, exactly, do they do?
Is crypto the future of our finances?
Cryptocurrency is an alternative asset, which happens to have realized incredible returns as of late. But in the future, it could be as common as stocks or bonds. In fact, many stocks will eventually be traded using blockchain technology simply because it is cheaper, faster, and more efficient to transfer value using blockchain. Banks like JPMorgan are already using blockchain for interbank transfers. The SEC has already affirmed that Bitcoin and Ethereum (Ether) are not securities because they are sufficiently distributed. This makes cryptocurrencies a regulated asset class. It is not a fad and it is not going away.
How does blockchain work?
Blockchain technology is essentially a digital, distributed ledger that lacks a central administrator. In short, these are blocks of transaction data connected together using hashes, so that once a transaction is placed onto the chain, it is immutable. The first and most advanced use case for blockchain is cryptocurrency.
Are there concerns about crypto?
The most common concern about cryptocurrency is money laundering and terrorist financing. And this was a legitimate concern several years ago but less so now. The Department of Justice has partnered with private sector companies like Chainalysis to freeze cryptocurrency wallets associated with nefarious actors. As law enforcement and regulatory bodies understand the space more fully, illicit financing will diminish.
What are the benefits?
The ability to transact without intermediaries taking a cut is revolutionary. Take, for example, remittances. Migrant workers who send money back to their families in their home country were once subject to onerous money transfer fees. Companies like Western Union grew fat from the percentage cuts that they took from conducting these cross-border transactions. Today, with just an internet connection and a smartphone, migrant workers are sending money back home using cryptocurrency for a fraction of the cost. Imagine the kinds of economic activity that might be possible that were previously cost-prohibitive due to high transaction costs.
This story is from Common Good issue 06.