Just like commodities to commodities-backed currency replaced by current paper money (fiat, banknote), global economy has been introduced by new form of medium of exchange called cryptocurrency. It is basically a digital money that is created to simplify the transaction process in digital environment (like internet). Currently there are around 280 Cryptocurrencies exist and the most popular one is called Bitcoin (Al Shehhi, 2013). Unlike normal banknote, there is no central bank that distribute/print the money. In Bitcoin case, people have to “mine” the currency by installing a software that will be solving mathematical problems in order to get the “coin”.
Before it was founded by Satoshi Nakamoto in 2008, cryptocurrency idea was introduced in 1998 by a member of cyperphunks mailing list group (in which Julian Assange, Wikileaks founder, was an internal member). He tried to achieve privacy by the creation of anonymous transaction method called b-money, that would allow untraceable pseudonymous entities to cooperate with each other more efficiently (Grinberg, R., 2012). However, 10 years later the idea grew beyond its initial purpose and had since become one of the technological hype.
There are several reasons why cryptocurrency such as Bitcoin has become so popular. Firstly, it has no transaction cost at all. The reason is, during the transaction, the program will create a peer-to-peer network between the sender and receiver. In other words, its simple infrastructure, and no intermediary, allows the currency to be more cost-efficient as compared to normal credit card and online payment vendor like PayPal (Zielke, 2013 ). Secondly, there is no risk of inflation, which means low risk of collapsing its value. The program (Bitcoin miner) will change the complexity of the problems and subsequently adjust the distribution of the currency in a predictable rate. Lastly, it is secure and anonymous. Receiver will never be able to track down the information of the sender and the sender cannot revert the transaction, preventing any scam behavior.
Spenkelink (2014) interviewed professionals from different industries and discovered hacking and direct cryptocurrency theft are apparently perceived as minor issues. According to his article, as long as the process is easy to use, the price is stable, and the “decentralized” aspect is maintained, general public will be more likely to adopt it. Likewise fiat money that is backed solely by government regulation and law, cryptocurrency will have to rely mostly on public’s confidence and trust (Grinber, 2012). Thus, it is very important to maintain the aspects Spenkelink (2014) described so as to make it more sustainable in the long run. Furthermore, the benefit of full privacy enjoyed by the users might become a drawback for local governments. That is because cryptocurrency (e.g. Bitcoin) allows criminal activities (e.g. money laundering) to slip through government surveillance easily.
In conclusion, cryptocurrency is still in infant stage and very few studies have ever studied the field. However, in developed countries where internet connection is prominent and where privacy issue is very sensitive, this type of currency is very highly demanded. However it may take years before the joint-benefits among all the stakeholders (such as government, users, and firms) can be manifested.
Al Shehhi, A., Oudah, M., & Aung, Z. (2014, December). Investigating factors behind choosing a cryptocurrency. In Industrial Engineering and Engineering Management (IEEM), 2014 IEEE International Conference on (pp. 1443-1447). IEEE.
Grinberg, R. (2012). Bitcoin: an innovative alternative digital currency. Hastings Sci. & Tech. LJ, 4, 159.
Spenkelink, H. F. (2014). The Adoption Process of Cryptocurrencies-Identifying factors that influence the adoption of cryptocurrencies from a multiple stakeholder perspective.
Zielke, B. (2011). Why Credit Cards Are Not the Future of Online Payment. Retrieved from: http://mashable.com/2011/03/02/credit-card-decline