The Effect of Blockchain Technology on Traditional Currency

The Effect of Blockchain Technology on Traditional Currency

Over the years, Blockchain tech has emerged to be one that has its use in various sectors outside of the fintech space. It offers a decentralized, immutable ledger that safe-keeps and records transactions in a network. It's decentralized because it allows a digital currency to maintain a trusted transaction network without depending on a central authority. Similar to how online casino chips offer simplicity, safety, and efficiency while playing free slots for fun, the technology promises to ensure the same on every transaction made.

The blockchain can be best described as a diary that cannot be forged due to its structure. The blocks and contents of a blockchain are protected by cryptography which makes forgery or destruction impossible. The blockchain is an undeniably ingenious invention that has revolutionized the financial technology (fintech) industry. Since the introduction of blockchain tech, it has evolved and has a market size of over 690 million US dollars as of January 2021.

In 2008, Satoshi Nakamoto created the concept behind blockchain distribution. It holds and safeguards the data exchange history, plus it utilizes peer-to-peer networking as a verification and record-keeping tool for individual exchanges. And all these happen without the need for a centralized authority. This concept is the backbone of cryptocurrencies such as bitcoin and ethereum.

Traditional currency is money that is in circulation within a geographical region and serves as an exchange medium between two or more parties. It is also an accepted payment means by others who aren’t the issuer. Traditional currencies are usually under the control or regulation of the government. The following currencies and more are considered traditional either in their physical or electronic form:

* dollars ($)
* pounds sterling (£)
* euros (€)
* yen (¥)

Blockchain technology has had its effects on traditional currency, and this article would highlight them. The impact of blockchain on these currencies is most obvious on the models of businesses and technical features of banks that issue traditional currencies. Let's look at the five most prominent effects.

Discourages Public Reliance on Traditional Currency for Transactions

There is a need for commercial banks to invest in a centralized database because the purchase and terminal maintenance costs are high. Also, they are saddled with the responsibility of human operation and labor costs which are attached to bookkeeping and settlement work. These problems can easily be solved with blockchain technology because its automation, as well as the feature of the decentralized ledger, can build a model with minimal costs and transparency.
Also, with traditional currency, there is a higher charge or cost attached to making transfers. For example, using your credit card to pay a $2,500 bill will attract additional charges because there are also institutions involved in completing that transaction. But with cryptocurrencies, the use of blockchain technology eliminates such charges as transactions made are either free or incredibly low. Some gambling platforms also facilitate the use of cryptocurrencies as you can get a casino bonus when you pay with bitcoin or other e-moneys. But while you're looking for a worthy offer, enjoy the True Blue casino no deposit bonus. Sounds cool, doesn't it?

Reduction of Risk Cost and Tracking System

Commercial banks must monitor and track the use of loans, but the initial method of doing so is not reliable and effective. Also, the responsibility of globally regulating capital circulation makes it even more challenging. Each user is treated as a node in the Blockchain technology, which enables a peer-to-peer transaction between lenders and borrowers, thus eliminating the need for credit guaranteed by banks as the intermediaries. Any credit risk due to information asymmetry is eliminated, and there is an improvement in the efficiency of fund management.

For instance, if one of the traditional banks begins to use the blockchain technology in processing loans and has completed the compliance procedures, other banks do not have to do it again as information can be exchanged through the blockchain. This, in turn, lowers the cost of meeting the regulatory requirements for lending and saves time.

Improves the Perceived Legitimacy of Traditional Currency Transactions in Some States

Due to the loss of power for the government and the risk of terror financing, some countries have prohibited the use of cryptocurrencies - for example, Indonesia. The Indonesian central bank published a press release on the 13th of January 2018 that forbade all payment system operators in Indonesia from processing transactions. This action shows that some states see blockchain technology as a real threat to their economy, most importantly on the welfare and security of their investors and investment policies, which outweighs the advantages cryptocurrencies provide for those countries.

Limits the Reliance on Third Party Intermediaries

Properties such as transparency and accountability are combined to foster loyalty during interactions between parties using cryptocurrencies. Blockchain technology uses hash functions, consensus mechanisms, and key encryption (public & private) to regulate transactions. In peer-to-peer transactions, the only channel of trust needed is between the two main parties. Hence, securing blockchain payments against fraud and cyber-attacks is necessary.

Meanwhile, with traditional currencies, the third parties establish trust by serving as intermediaries or agents who oversee the exchanges that occur in all digital transactions that are within their jurisdiction. These transactions would take time and are also charged with high costs. Some people may consider this go-between tedious and inflexible.

Less Use of Traditional Currencies for Petty Cash Transfer Across Borders

The use of crypto is not encompassed by a single geographical area as funds can reach people anywhere in the world. People use cryptocurrencies to transfer cash at low costs, especially for those who intend to transfer a small amount of money across borders. For example, the cost of remittance fees within a blockchain is 2-3% of the total amount, unlike the 5-20% withheld by other third parties. This transfer can be cheaper because the use of cryptocurrencies allows for global financial transactions without needing an intermediary. Also, this feature guarantees speedy and flexible transfers as intermediaries are eliminated.

The above points summarize the key effects of blockchain on traditional currency and its use. Cryptocurrencies such as bitcoin, ethereum, and others are here to stay as the need to focus on a more decentralized method of peer-to-peer transactions increases. The perceived legitimacy of traditional currency is perhaps its major saving grace. Blockchain technology, although secure, requires a greater deal of trust between counterparties.

Final Thoughts

Blockchain is the future as countries around the world are beginning to embrace this gold mine as. The world global forces have seen its value and what it is set to achieve in improving the world economy. Already, companies such as Spotify and IBM are making use of blockchain tech for several business purposes. The prediction is that by 2022, one blockchain-only enterprise will hold a $10 billion value.

The speed at which cryptocurrencies are taking over the world is commendable as cryptocurrencies can have a considerable impact on developing countries, particularly in reducing transaction cost, fees, time and also in cross-border payments. The technology also fights against corruption by possessing a more transparent tracking system on how funds and reducing third-party control over public funds.