The cryptocurrency era liquidated Kublai Khan’s banknotes

They created digital Wall Street

In the twelfth century, Kublai Khan, the grandson of Genghis Khan, created the first fiat currency, money that received its value from the state. This is not the first paper money – Chinese traders have used certificates of deposit since the 7th century. However, this is the first currency that is not backed by any commodity, such as gold, but only by the power of the state. In fact, anyone who did not accept the khan’s decision risked being killed. This is the birth of money. Today, wallets already

are not made

of leather instead

these are made

from numbers

In just a few years, cryptocurrencies have gone from digital innovations to trillions of dollars of technology with the potential to change forever the global financial system started by Kublai Khan. Bitcoin and hundreds of other cryptocurrencies are increasingly being used to invest and buy everything from software to real estate and even drugs, according to the Foreign Affairs Council.

For their supporters, they are a democratizing force, snatching power to create and control money from central banks and Wall Street. However, critics say the new technology is highly unregulated and allows criminal groups, terrorist organizations and certain countries to buy illegal items. Experts say the infamous cryptocurrency, which consumes huge amounts of electricity, is particularly harmful to the environment.

Warren Buffett predicted in 2018 that “cryptocurrencies will end badly.” Despite his well-founded sentence, recent events have shown that the sage’s conclusion in investing is a bit hasty.

Financial regulators are now trying to normalize the situation with the new money. Measures vary widely around the world, with some governments adopting cryptocurrencies and others banning or restricting their use. Central banks around the world, including the US Federal Reserve, are considering introducing their own digital currencies to compete with the cryptocurrency.

Where does it all start?

Cryptocurrencies are so named because of the use of cryptography principles to mint virtual coins. They are usually exchanged in decentralized computer networks between people with virtual wallets. These transactions are publicly recorded in distributed, tamper-proof registers known as blockchains. This prevents duplication of coins and eliminates the need for a central authority such as a bank to validate transfers.

Bitcoin, created in 2009 by software engineer Satoshi Nakamoto, is arguably the most famous cryptocurrency and its

total value

sometimes exceeds

$ 1 trillion

But many others, including etherium, the second most popular, have multiplied in recent years and work on the same general principles.

Cryptocurrency users send funds between digital wallet addresses. These transactions are then recorded in “blocks” and confirmed on the network. Blockchains do not record real names or physical addresses, only transfers, thus providing a degree of anonymity to users. Some cryptocurrencies, such as Monero, claim to provide additional privacy. However, if the identity of the portfolio owner becomes known,

its transactions

can be

forwarded

The prices of bitcoin and many other cryptocurrencies vary depending on global supply and demand. However, the values ​​of some are fixed, as they are supported by other assets, which is called “stable coins”. For example, the price of Tether and USD Coin is estimated at $ 1 per coin, although authorities say this is not always the case.

Why are they popular?

Once rejected as a peripheral interest of technology evangelicals, cryptocurrencies – especially bitcoin – have increased in value in recent years. In 2021, the price of bitcoin jumped to over $ 60,000 for the first time. Individual currencies have different attractiveness, but their popularity stems largely from their decentralized nature: they can be transferred relatively quickly and anonymously, even across national borders, without the need for a bank that can block the transaction or charge a fee. A number of dissidents from authoritarian countries have raised funds in bitcoin to circumvent state control.

“The COVID-19 pandemic has not only accelerated the transition to digital and contactless payments, but has also led to more widespread adoption of alternatives to physical money such as cryptocurrency,” economist Essouar Prasad told CBS. According to him, the era of paper money is coming to an end, while the era of digital currencies has begun.

However, the price of cryptocurrencies is changing dramatically, and some experts say this limits their usefulness as a means of transaction. Most buyers and sellers do not want to accept payment for something

whose value can

to change

drastically

from day to day

However, some companies accept bitcoin. Many investors see it as a speculative asset to hold over time instead of making payments with it, and often compare it to gold. Some people consider bitcoin to be a hedge against inflation because supply is constantly fixed, unlike fiat currencies.

In countries with historically weak currencies, including several in Latin America and Africa, bitcoin has become extremely popular with citizens. In 2021, El Salvador shocked the world by becoming the first country to make bitcoin a legal tender (residents can pay taxes and settle with it), although the move sparked protests. Some politicians in other parts of the region have expressed support for the idea.

Meanwhile, stable coins have the potential to compete with fiat currencies as the dominant form of payment. Their value is relatively unchanged and can be sent immediately without transaction fees related to credit cards or international money transfer services. Also, since stable coins can be used by anyone who has a smartphone, they are an option for

attracting

millions of people

who do not have

traditional

Bank accounts

“This type of digital coin is very promising as a form of cheap, high-speed, payment technology,” experts say.

Cryptocurrencies and blockchains have led to a new kind of “decentralized finance” – DeFi. This is essentially Wall Street’s version of cryptocurrency. It aims to offer people access to financial services – borrowing, lending and trading – without the need for institutions such as banks and brokerage agencies, which often charge large commissions and other fees. DeFi is gaining popularity as investors pour tens of billions of dollars into the sector.

Because of its usefulness in tracking transactions, blockchain technology has a number of potential applications outside of cryptocurrency, experts say, such as facilitating real estate transactions and international trade.

Criminals and terrorists avoid sanctions with virtual currency

Cryptocurrencies have created a new type of challenge that governments need to address. Their anonymity and portability make them attractive to criminal groups, terrorist organizations and certain countries. There is also uncertainty about the regulatory treatment of emerging financial technologies.

Meanwhile, the rise in DeFi and cryptocurrencies has raised questions about consumer protection, market volatility and the ability of central banks to conduct monetary policy.

In recent years, cybercriminals have increasingly carried out ransomware attacks that infiltrate and shut down computer networks and then demand payment to recover them, often in cryptocurrency. According to the latest annual assessment by the United States Drug Enforcement Agency (DEA), drug cartels and money laundering are increasingly involving virtual currency “in their activities.” US and European authorities have closed a number of so-called dark markets, websites where anonymous individuals can use cryptocurrency to buy and sell illegal goods and services, mostly drugs.

Also, a number of sanctioned US states, including Iran and North Korea, are increasingly using cryptocurrency to evade Washington’s measures. Terrorist groups such as Islamic State, Al Qaeda and the military wing of the Palestinian organization Hamas are also trafficking all kinds of goods through bitcoin.

Bitcoin mining is also a huge problem, as the grid consumes a huge amount of electricity during this process. This has raised concerns about the contribution of cryptocurrencies to climate change. Proponents say the problem can be solved with the help of renewable energy. The president of El Salvador even promised to use volcanic energy to dig up bitcoin.

The cryptocurrency boom also means that billions of dollars in transactions are now taking place in a relatively unregulated sector, raising concerns about fraud and tax evasion. If virtual coins become the dominant form of global payments, they could limit the ability of central banks, especially those in smaller countries, to determine monetary policy by controlling supply.

– .