It is interesting how our economy has evolved from commodity-based to the present-day digital currency. An economic system is the backbone of any nation. The system evolves as per the need of time. It consisted mainly of a barter system (exchange of items or work) during the early days of our civilization. This system changed as people travelled and explored the world around them. The first physical form of currency known to mankind was metal. Certain civilisations started using metal coins in exchange for commodities as it provided a fair and easy transaction. Metal coins were eventually replaced by paper currency. States slowly developed and adopted the idea of a currency. The governing bodies were responsible for fixing the value of the currency and it became widely accepted. This is the journey of our present-day currency. There are around 115 currencies in the world and they are interchangeable as per the standard exchange rate.
The journey, however, does not end there. Most of the aspects of our lives have been digitised and so has our economic system. It was sometime in the second half of the 20th century when we had the first card for online payments and transactions. It revolutionised monetary transactions and life became quite easy. Card and online transactions became the method of choice even for day-to-day activities. With further advancement in technology, we were introduced to the concept of digital currency. Digital currency is nothing but a virtual form of the physical currency that we have in our banks. Digital currency is stored in an electronic wallet and can be transferred to another wallet online. We can easily carry out online transactions, and purchases using digital currency as its value is equivalent to physical currency. Digital payment using various digital wallets is widely accepted globally. Digital currency use has been at its peak during the COVID-19 pandemic. There is another type of digital currency much spoken about these days called ‘Cryptocurrency’.
What is cryptocurrency?
It is a virtual currency that does not have any physical existence and is not authorised by a government or parallel authority. To put it in simple words, cryptocurrency is a computer code written in blockchain technology and the transactions involved are recorded as a ledger entry. It is a form of decentralised currency system. All the transactions in cryptocurrency are saved as blocks in the system. The most common example of a cryptocurrency is Bitcoin. It was the first cryptocurrency ever made under the name Satoshi Nakamoto in 2008. The bitcoin currency was made available to the public in 2009. At present, there are around 19 different types of cryptocurrencies available on the market. The last decade has seen an exponential rise in cryptocurrency.
How to own cryptocurrency?
Cryptocurrencies can be bought online in exchange for money or mined by solving complicated mathematical problems. Mining cryptocurrency is a complex process and requires a very sophisticated computer. Because of this, mining is mostly done by large private firms. The miners are rewarded in the form of cryptocurrency tokens. Hence, cryptocurrency mining is considered very profitable. Mining is also important to keep a check on the legitimacy of crypto transactions. However, cryptocurrency is still not considered money, it is considered a digital asset. The legal status is a problem when it comes to its use in day-to-day transactions. As a result, cryptocurrency is not an accepted mode of money transactions in most countries. It is, however, widely accepted in European Union countries.
Cryptocurrency, yes or no?
Cryptocurrency offers many advantages over regular currency. The prime most being its accessibility to any and everyone with an internet connection. It provides us with a decentralised economic framework with ease of global transactions. Another important advantage of cryptocurrency is fast, cheap, safe, and global transactions from a remote location. It is cheaper to buy things using cryptocurrency as there are no additional fees from the governing authority such as a bank. It is hackproof and yet has very transparent transactions. The transactions are stored as a ledger entry and the old transactions can not be tampered with in any way, thus the transparency of the transactions is feasible.
The major drawback of cryptocurrency is its volatile nature. Unlike the regular currency, the value of the bitcoin changes as it is spoken of. The system is pseudo-anonymous and it does leave a trail that can be deciphered by technology experts. It is sometimes used for the purpose of money laundering and illegal transactions on the dark web. The most dreaded drawback of cryptocurrency is the energy required for mining hence the environmental impact. It is said that the amount of electricity required for cryptocurrency mining annually is almost equivalent to the electricity consumption of an entire nation. Moreover, mining generates a significant amount of e-waste annually. These are the major concerns about the widespread implementation of cryptocurrency.
Future with cryptocurrency?
Considering the current climate situation, the companies involved in generating cryptocurrency are seeking green solutions. For example, the data centres are being powered using green/ renewable sources of electricity thus minimising carbon emissions. A few companies have also started using proof-of-stake technology to reduce power consumption. The companies are incentivising the cryptocurrency by using it to tokenise carbon credits. Moreover, cryptocurrency is also being used in carbon capture and sequestration. The major projects involving cryptocurrency and climate actions are Moss, KlimaDAO, Toucan, SavePlanetEarth, AirCarbonExchange, CarbonTokenProject, KumoDAO, etc. The NFTs, virtual tokens, can be used for a social cause or donations. Cryptocurrency is emerging as a preferred way of donation, particularly, in the post-COVID society. Also, the technology of blockchain is an excellent way to improve the transparency of climate actions. With blockchain technology, one can easily get detailed information on a particular product and also trace back its greenhouse gas emissions.
To summarise, cryptocurrency provides an alternative economic framework with freedom of global transaction and a good investment option. There are some concerns about its environmental impacts but with advancements in technology and tokenisation of carbon credits, it is possible to reduce the carbon footprints. In fact, if used correctly it can even contribute positively to our climate actions and mitigations.