What does it take for a currency to have value and circulate?
For example, the ruble and the dollar are currencies guaranteed by the countries of Russia and the United States, and are traded on the trust of these countries. Cryptocurrencies are not controlled by anyone (there are exceptions, but we will not consider them here), but trust in them is built on the irresistible blockchain technology.
Secondly, is it possible to “use” the currency for a specific purpose in everyday life.
This is the main difference between an existing legal tender and a virtual currency.
No matter how reliable a currency is, if there is no product or service that can apply it, it will not be traded. Of course, if you want to buy something for it, you can’t, because no one uses it.
In order for monetary circulation to take place in the economy, there must be a variety of goods and services for which currency can be used as a means of payment.
The value of a currency is based on an obvious fact: what you can do with it. That’s why, no matter how high the price of a virtual currency is, if there is no use for it, its value is meaningless.
Value based on expectations is a double-edged sword. If people’s expectations are shaken even a little, the value can easily fall.
There are uncertainties such as leaks and fraud, government regulation. The value of a currency built on unrealistic expectations can be destroyed by the appearance of greater uncertainty or greater strength than expected. That is why virtual currencies are unstable today, and are fueled by a sense of unpredictable uncertainty.
The superiority of blockchain from an economic point of view
We have already said that cryptocurrencies are built on blockchain technology, but what makes blockchain so special?
Let’s look at the economic cycle, which opens up a lot of opportunities for cryptocurrencies.
Micropayments (very small payments)
The fees for transactions with virtual currencies are extremely small.
For example, you will have to pay a fairly high amount for an operation on a bank account in US dollars, and the fee for international money transfers is even higher. In contrast, virtual currency transaction fees are extremely low.
For example, the commission for the transfer between XRP (Ripple) wallets is mere pennies. At this stage, fees in many cryptocurrencies is only a few dollars, but there is an advantage that the commission practically does not change, even if the amount becomes larger.
It is expected that with the development of technology and its spread in society, the fee will become even cheaper. As for Ether, if the technology continues to improve, it will be possible to make transactions with a commission that you don’t have to worry about. This is due to the fact that blockchain-based transactions work without an intermediary in the person of a traditional bank.
Extremely low fees will not only expand business opportunities, but also change the very idea of monetization. As technology continues to evolve, it is expected that virtual currency transfer fees will become even cheaper.
Transactions with virtual currency occur much faster than with legal tender. On Coinmarketrate.com you will find blockchain projects that will amaze you with the speed of their transactions.
If you transfer a legal tender to your account after 15:00, then the payment confirmation will take until the next morning, and if you transfer money abroad, it will take even longer.
A virtual currency transaction is completed every time a block is created, so you can transfer money in three seconds using XRP (Ripple), or in ten minutes using BTC (Bitcoin), which is considered the slowest currency.
In fact, this technology can be applied not only to virtual currencies, but also to legal tender, and it is currently being tested in many countries.
Transactions with virtual currencies are carried out exclusively by maintaining a registry on the blockchain, and operations such as deposits and withdrawals can be completed by simply adding entries to the registry. Currently, large electronic servers are used for banking operations, but if the blockchain is also used to record banking transactions, instant transactions will become possible, as in the case of virtual currencies.
In an operating business, transactions are usually separated by a fixed time period, for example, the closing date of the month. However, with the introduction of virtual currency transactions, sales will be credited immediately, and the concept of a closing date will disappear.
If today’s sales are received today, it will change the cash flows of cash-strapped organizations and private stores and have a serious impact on the management of large companies.
Extremely reliable protection with high resistance to hacking
Each virtual currency transaction is stored in a series of blocks, and the blocks are closely correlated with each other, so in order to forge part of the history of past transactions, all subsequent data must also be forged in a sequential manner.
That is why it is believed that records in the blockchain are extremely difficult to fake. Since they are irreversible and the transaction information cannot be changed at a later stage, there is absolute confidence in the transaction.
Theoretically, it is possible to fake a transaction if you have more than 51% of the computing power, but even the most sophisticated machines, such as quantum computers, cannot achieve this level of computing power. Therefore, it is unprofitable to commit fraud, and it is more reasonable to maintain the system and make a profit than to spend money on falsification.
Visualization of transactions
Virtual currency transactions are recorded in a distributed ledger on the blockchain, and this ledger can be viewed by anyone in the world.
Currency circulation is what makes the economy work. Blockchain-based virtual currency transactions allow you to see how much currency has been transferred from one person to another.
The ability to track where your money goes strengthens the connection between producers and consumers, and makes this connection visible to everyone.
The flow of currency is visible to everyone, and the risk of fraud is extremely high, since anyone can track transactions. Honest deals are more trustworthy, and dishonest ones are less.
In other words, you can see your transactions and you can see your trust.
Smart contracts (automation)
Smart contracts are a concept called “contract automation”.
This is a state in which a number of threads from “contract” to “execution and settlement” are automatically executed.
A smart contract is a concept called “contract automation” and refers to a state in which a number of threads from “contract” to “execution and settlement” are executed automatically.
It is already possible to automate contracts and their execution. For example, EC (e-commerce) contracts are written programmatically, and when certain conditions are met, the contract is formed automatically. When these transactions are carried out on the blockchain using virtual currency, they can be carried out without intermediaries, such as people or companies.
However, credit card payments, which are often found in EC payments, are not instantaneous, and are not paid directly to the manufacturer, and the transaction goes through the company that issued the credit card.
It is due to the resistance to hacking and the visibility of transactions that a situation can be created in which transactions can be carried out with confidence, even if everything is automated in the absence of an administrator.
The token economy will change the movement of money and lifestyle
The five mechanisms described above are extremely difficult to implement with a legitimate means of payment, and this is only possible with the help of crypto assets.
When all these mechanisms work, a new economic sphere will arise, distinct from the monetary economy.
This is the “token economy”, and as it penetrates into society, it will create new ways of living, working and evaluating that did not exist before:
- Legitimate rewards for stakeholders who are buried in the existing economic system.
- A new form of lending that does not require personal information or credit management.
- Changing the relationship between consumers and producers.
- A way of working that allows people to earn multiple incomes without being part of a company.
It is cryptocurrencies that will lead to such an economic cycle that no one has seen yet.