How digital currencies are changing money

Unbeknown to some, money has been digital for a while now. Records relating to bank accounts, money transfers, access to credit and so forth have all been computerized decades ago and we take them now for granted as part of the normal service offering of financial institutions.

So, if you boil down today’s use of money and the increasing raise of cashless transactions, money can be seen simply as a ledger, where financial institutions keep a record of who sent money to whom, how much money someone has in a certain bank account and whether people have made a payment or not.

What are cryptocurrencies?

However, the advent of cryptocurrencies has changed a fundamental concept in the way money is attributed value and used. But what are cryptocurrencies? Cryptocurrencies are units of value (eg. currencies) that are recorded on a distributed ledger (eg. a shared computer database), instead of being recorded in a bank’s records. In practice, cryptocurrencies perform similar functions to that of fiat, or traditional, money: unit of account, medium of exchange, store of value and standard of payment. The major difference is that the distributed ledger containing the information about accounts and transactions is not stored in the computer servers of a bank, but on hundreds or thousands of computers around the globe. You may wonder why anyone would put their money information on thousands of computers without worrying about disclosing such personal information, but that’s where the “crypto” part of cryptocurrencies comes into play: essentially, all the information is anonymized, and no one can know how much money you have in your account.

Whose money is it anyway?

So, thanks to cryptocurrencies, one may be tempted to think we don’t really need banks anymore. But what about money itself? Fiat money is issued by Central Banks, which are bound by their own rules and regulations and act within the limits of the country they belong to. However, cryptocurrencies have no such central authority, and the actual management of the issuance of new cryptocurrency units is determined by the computer code that underpins the cryptocurrency. The code is transparent, everyone can check it, so there is no uncertainty as to what will happen to that cryptocurrency, whereas you never know if the Fed or ECB will increase or decrease the money supply (and trigger inflation or deflation).

Crypto beyond crypto

Cryptocurrencies have become an investment asset class in and of itself, with a total market capitalization as of 28th September of approximately USD 1.88trn. More and more traditional financial institutions are investing in and/or offering their clients access to cryptocurrencies and the ability to transact cross-border in a much faster, often cheaper, and more transparent way than ever before.

Beyond that, cryptocurrencies have enabled the establishment of new ways to monetize value. The massive growth in Non-Fungible Tokens (NFTs) to sell works of art, music, collectables and so forth, is a testament as to how this new form of money is actually giving space to the emergence of innovative business models.

What’s next?

Cryptocurrencies have yet to find their “killer app” that allows easy access to cryptocurrencies though many are vying for that position, including Robinhood, Revolut and PayPal and we may get one sooner rather than later.

However, there are still plenty of regulatory uncertainties and issues in many jurisdictions, which although can be considered as normal growing pains of a new technology, make it hard to predict when widespread adoption of cryptocurrencies, in all their forms and uses, will take place.

So, where do you stand on the crypto debate?


By Maurizio Raffone


About the Author

Maurizio Raffone

Maurizio is the Chief Financial Officer for Credify Pte Ltd, a Singapore-based Fintech company developing enterprise solutions focused on embedded finance and digital identity. Maurizio has over 20 years of international finance experience, with expertise in credit derivatives, structured finance and fund management.

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