Can Cryptocurrency and Blockchain Technology Impact the Global Economic Transaction System?
Introduction
This critical response is to affirm or deny whether blockchain technology and cryptocurrency can affect the global economic transaction system. Blockchain is a system that records and keeps track of all the transactions being made, making it impossible to be hacked or manipulated by a human being (Euromoney.com). Cryptocurrency is a digital asset that is made by a software that allows secure trading and ownership (Voigt, 2018). Thus, taking into consideration instances where both crypto and blockchain has affected or could affect international financial transactions either positively or negatively. This way, the readers will delve into the impact of blockchain and digital currency. Furthermore, this task will involve analyzing and synthesizing literature material through article and journal reviews to build on the available research about the topic in question. Policymakers and financial traders have discussed and debated cryptocurrencies for years, although only recently are they seen as financial tools, making this topic crucial to explore. Furthermore, blockchain technology is the framework behind all-digital money transactions, therefore, it cannot be discussed cryptocurrencies without elaborating on the technology. Although there are security issues with cryptocurrency, this comparative critical response will argue that the two concepts can impact the global economy due to the social and economic potential for financial services and capital access. In this CCR, five main points will be discussed to support the claim made, the industrial relation with cryptocurrency, the evolution of banking in poor countries, improved transaction costs, increased transparency and finally the decrease in cyber-fraud.
The Rise in Industries Built Around Cryptocurrencies
This section will focus on the growing industries which tie their transaction around blockchain technology and digital money. Some companies, such as Binance, have existed for over a decade, a transaction service institution dedicated to overseeing all digital coins exchanges (Warburg, 2016). This institution has facilitated the peer-to-peer cryptocurrency exchange between local and overseas partners, thus increasing the value of virtual interconnection. Many other crypto exchanges facilitate transactions between crypto-coin holders through their coin wallets. Besides, companies such as Tesla have increased the viability of digital money by accepting Bitcoins as a mode of payment other than customary legal tender (Seetharaman, 2017). Being a mode of payment, the global acceptance of digital cash is changing, in part leading to increased chances of digital international economic transactions.
On the other hand, digital currency transactions thrive on the blockchain system, gaining interest from various industries. Paper trading and physical money exchanges lacked proper records and proof of service, which the technology emphasizes and guarantees (Ciaian et al., 2016). This technology has increased the traceability of economic data, making transactions safe from intrusion and disruption. Besides, the technology has eased cross-border payments by providing high transparency and automatic payments (Beck et al., 2017). Furthermore, the interconnections between computers in a blockchain verify all transactions, therefore eliminating the chances of a data breach. Intermediaries were crucial before blockchain inception in exchanges and financial transactions, but data loss and manipulation were high (Fernández‐Villaverde, 2018). Such scenarios made transactions unreliable globally, but blockchain technology eliminated them, making payments more direct and reliable.
Evolution of Banking Systems in Poor Countries
This section will assess how cryptocurrencies have evolved in third-world countries’ banking systems by exposing them to a larger audience. Cryptocurrencies and blockchain technology are all about decentralizing economic transactions rather than central banking systems (Tapscott, 2016). The digital system offers personal crypto wallets and accessibility apps through individual handsets and computers. This way, crypto users can use this system as a mode of payment and transactions even under poor banking infrastructure (Tapscott, 2016). The presence of accessible methods of payments can increase the rate of economic exchanges between the third and first world, which mainly slows due to lack of reliability and accessibility.
On the contrary, the more decentralized the financial system is, the higher the growth rate of economic transactions. Fernandez and Villaverde (2018) mention that the interconnectedness of the blockchain system will help revolutionize financial strategies, leaving most people financially empowered and enabled (Fernández‐Villaverde, 2018). Furthermore, its reliance on the internet makes it globally accessible. For example, Crypto infrastructure is safe for operations in Venezuela, where the local economy is unstable and local currency value is low relative to other major currencies (Fernández‐Villaverde, 2018). This way, such countries can sell local merchandise such as petroleum through the crypto platforms, permitting inter-conversion between major digital currencies and local legal tender.
Improved Transaction Costs
Global financial services carried high transaction costs mainly before the decentralization and reduction of brick-and-mortar businesses. High transaction costs take a heavy toll on small-scale traders who cannot afford bank charges and other money order services (Warburg, 2016). However, crypto transactions are low on commission and costs, making them affordable to all social classes. The affordability increases the number of transactions both locally and internationally. In addition, the inter-conversion rates between significant crypto coins such as Bitcoin and local currencies carry low charges and timeless transaction processes (Warburg, 2016). The nature of the transaction increases people’s acceptance of blockchain as a financial tool making the global economy more intertwined.
Some crypto exchanges and brokers offer free transactions to increase public acceptance and global interconnectedness financially and economically. Crypto Rocket offers almost zero deposit requirements for users who conduct daily retail trading of different crypto constructs for differences (Beck et al., 2017). This way, people are reaping more from transactions rather than paying as much as before service decentralization and virtualization. Besides, competition is increasing between crypto exchanges and the different cryptocurrencies holders who dominate the market, making the transactions cheaper to attract users (Warburg, 2016). All countries could benefit from such fluctuations of charges and conversion prices, which increases digital transactions relative to over-the-counter transactions.
Next level Transparency
This section of the comparative critical response will focus on how security measures regarding crypto exchanges and blockchain technology has impacted the global economy. All transactions of global crypto operate on a similar distributed ledger which ensures digitization and interconnection between verification processes (Tapscott, 2016). International daily transactions are massive and require robust security features that blockchain technology guarantees. Besides, the distributed computer system implies that no single entity can manipulate the market or data about a particular crypto transaction (Seetharaman et al., 2017). This issue is different in the brick-and-mortar businesses where servers operate under someone’s control leading to data loss, fraud, and corruption.
Increased visibility of national financial transactions will help citizens make sound decisions about their economic status. Crypto exchanges reflect the value of a local currency based on exchange values and inter-conversion rates (Ciaian et al., 2016). This way, crypto exchanges act as a source of real-time information about global performance and offer track records of state funds, thus helping traders make decisions and make investments in their economic and political climate. Technology is in the era of big data, where financial information is crucial to understanding where the systems are heading technically and fundamentally (Warburg, 2016). This way, blockchain and cryptocurrencies will impact global economies tremendously, extending even to the social prospects.
More Power to Entrepreneurs
Most traders are claiming the increased independence of business on corporate banking and improved control of transactions locally and cross-borders. Before service decentralization, corporate banking dominated the global financial transactions making all companies lack a crucial level of freedom over their platforms (Ciaian et al., 2016). This situation has changed since most entrepreneurs can track payments and make several entries to satisfy their daily transaction needs. Other auxiliary services such as BitPesa allow African countries to conduct cross-border businesses with traders in Europe, Asia, and America (Fernández‐Villaverde, 2018). This way, companies in emerging countries are capable of high-class financial coverage and more free-market connections with the rest of the world.
Digital wallets have increased control and conversion rate between crypto coins and other currencies and commodities. For example, TenX and BitPesa wallets allow traders to convert altcoins into fiat currencies which they can later redirect to payments, investments, or purchases (Beck et al., 2017). This way, the rate at which cryptocurrencies are taking over is a clear pointer; the impacts are tremendous and positive. Many countries are searching for social and financial inclusion in the global market, which elicits the need to eliminate borders (Fernández‐Villaverde, 2018). Blockchain has proved to possess all the properties that any industry would require to evolve financially.
A Shift in Cyber Fraud Technology
Blockchain technology which runs all crypto ledgers, has changed digital fraudsters’ approach to cyberspace. Even though distributed ledgers have proved to be hard to hack or manipulate, crypto fraud has proved to be the worst, leading to multibillion-dollar losses (Knezevic, 2018). Digital value has increased, attracting high numbers of malevolent traders who intend to destroy the integrity of crypto exchanges. Through system manipulations, most people have lost personal data as hackers try to compromise target users, leading to a loss of trust in some trades and coin wallets (Fernández‐Villaverde, 2018). More concerns have arisen concerning the reliability of digital currency. Besides, the money is volatile in value, making it seem unrealistic and fraudulent in operations (Knezevic, 2018). Most nations are calling for a digital currency with an intrinsic value.
Conclusion
This comparative critical response shows that blockchain technology and cryptocurrencies have a positive social and economic potential to impact global business transactions through decentralized financial services and flexible currencies. Many industries revolve around this system in impoverished countries with poor banking infrastructure. Besides, low transaction costs would help small-scale traders to access the global market, thus increasing turnovers. Increased transparency has increased crypto acceptance hence giving traders more market power. However, fraud has increased, eroding the viability of the money system. This situation might change public perception about digital money, thus minimizing global crypto transactions.
References
Beck, R., Avital, M., Rossi, M. and Thatcher, J.B., 2017. Blockchain technology in business and information systems research. Business & information systems engineering, 59(6), pp.381-384.
Ciaian, P., Rajcaniova, M. and Kancs, D.A., 2016. The digital agenda of virtual currencies: Can BitCoin become a global currency? Information Systems and e-Business Management, 14(4), pp.883-919.
Euromoney.com. (2022). Blockchain Explained: What is blockchain? | Euromoney Learning. [online] Available at: https://www.euromoney.com/learning/blockchain-explained/what-is-blockchain [Accessed 8 Mar. 2022].
Fernández‐Villaverde, J., 2018. Cryptocurrencies: A crash course in digital monetary economics. Australian Economic Review, 51(4), pp.514-526.
Knezevic, D., 2018. Impact of blockchain technology platform in changing the financial sector and other industries. Montenegrin Journal of Economics, 14(1), pp.109-120.
Seetharaman, A., Saravanan, A.S., Patwa, N. and Mehta, J., 2017. Impact of Bitcoin as a world currency. Accounting and Finance Research, 6(2), pp.230-246. https://www.researchgate.net/profile/A-Seetharaman/publication/317134650_Impact_of_Bitcoin_as_a_World_Currency/links/5f27f08f299bf134049c8832/Impact-of-Bitcoin-as-a-World-Currency.pdf.
Tapscott, D., 2016. How the blockchain is changing money and business. TED Summit. https://www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_money_and_business?language=en
Voigt, K. (2018). What Is Cryptocurrency? Here’s What You Should Know. [online] NerdWallet. Available at: https://www.nerdwallet.com/article/investing/cryptocurrency [Accessed 8 Mar. 2022].
Warburg, B. (2016). How the blockchain will radically transform the economy. [online] Ted.com. https://www.ted.com/talks/bettina_warburg_how_the_blockchain_will_radically_transform_the_economy?language=en