With the latest concerns regarding cryptocurrencies’ safety for investing, there are polarized opinions on this matter. Besides all the media hype or opposing views, cryptocurrencies hold power over a country’s economy. These digital assets have reached a point where global acceptance is considered for the future, which shows how much they’re evolved on the market. Dealing with cryptocurrencies must be done cautiously because although they can present an excellent deal for someone’s future savings, their high volatility can become a severe risk.
Luckily, there are many types of cryptocurrencies out there, some of which are made to sustain the ups and downs of the market. And along with large-cap cryptocurrencies, people can blame their assets and, therefore, minimize the risk. It’s also essential for someone to take their information from reliable sources, so checking the current Ethereum price should be done only on trusted websites. That’s because although the blockchain technology backing up crypto transactions is one of the safest, scammers are common.
But cryptocurrencies have a bigger impact than we think. Let’s see how they influence the economy.
Cryptocurrencies and inflation
Lately, inflation has affected many countries due to the latest economic and social events. As a way to cope with the situation, people thought that cryptocurrencies might protect their assets from inflation since they are not controlled by a central authority. Bitcoin, for example, has been considered to contribute to the increasing value of readily available BTC and the following tokens to be mined. At the same time, investors consider altcoins and other crypto alternatives as reliable, too, since they’re made to face the sudden changes in price that the crypto market suffers from.
It may be true that cryptocurrencies are beneficial compared to fiat money in some countries, where the devaluation against the US dollar is affecting purchasing power. For example, in countries like Venezuela or Argentina, people are inclined to invest in cryptocurrencies due to the lack of value their national coin holds. However, that’s only good used as a backup situation, and the case with El Salvador shows us that. El Salvador became the first country in the world to use Bitcoin as a legal tender, which was something the population was not ready for. This experiment has shown us yet again that worldwide acceptance of cryptocurrencies is not a good idea for now, and people need more education on the matter. In contrast, cryptocurrencies need to spend more time on the market to prove reliability in the long run.
The environmental problem
Making crypto transactions is not as easy as it sounds. The mining process, through which investors create new digital coins, is actually a harmful one for the environment and requires considerable investments regarding computational power. But it wasn’t always like this. At the beginning of the cryptocurrency fever, anyone could mine with just a regular computer. But now, as the markets grew at a faster pace and many more cryptocurrencies have been revealed, it was natural that the mining process became more challenging. For example, to mine Bitcoin or Ethereum now, you need a specially designated computer with an ASIC (application-specific integrated circuit) chip which is quite costly and complex.
This not only makes it harder for people to get cryptocurrencies but also damages the environment by contributing to an excessive increase in carbon emissions. That’s because mining hardware consumes a lot of electricity which mostly comes from fossil fuels (coal, for example). It is estimated that the equivalent of one bitcoin transaction is approximately 50 days of power usage for the average US household.
Luckily, people became aware of this problem, and while some cryptocurrencies upgraded their processes, new ones have been introduced as green coins that are produced through renewable energy. Ethereum, for example, has switched from the traditional method of recording transactions from proof-of-work to proof-of-stake, which resulted in considerable energy consumption by ~99.95%.
The impact on global investments
One crucial benefit of cryptocurrencies is that geographical barriers do not limit them, which can facilitate trade between companies and individuals, considerably improving transactions. However, gas fees and other payments required for the transactions can become an issue in time if they increase due to the expansion of blockchain technology and the demand for cryptocurrencies.
Globally speaking, cryptocurrencies are safer when it comes to transactions because they don’t require users to offer too much information. Numerous security layers are involved in the transactional process of most cryptocurrencies, which facilitates selling and receiving cryptocurrencies. As a result, many businesses started accepting Bitcoin, Ethereum and other cryptocurrencies as payment.
The decentralized system that rules cryptocurrency transactions and expansion might help reduce the possibility of fraud, which usually happens in international transactions. This would contribute to the rise in economic activities since the global inclusion of digital assets may provide more transparency and efficacy in company processes.
Are cryptocurrencies good for the economy?
Overall, are cryptocurrencies for the economy? Some experts stated that these digital assets might help regulate the economy in some ways. They could help drive financial stability and innovation and provide market incentives for environmental stability. In conclusion, they have the potential to change the financial system and offer the opportunity for a better economy.
Despite that, cryptocurrencies are currently considered to be risky for investors. The main reason for that is that their value depends on media coverage and overall investor sentiment. As a consequence, FOMO (fear of missing out) is affecting the market’s volatility, which is something that may change over the course of the following years. But that depends on the evolution of cryptocurrencies. For example, Bitcoin’s maximum coin supply is close to an end, and we still don’t know what will happen to the market after no more bitcoins are released. Therefore, the outcome can’t be predicted; we just have to watch the continuation of the market evolution closely.
Bottom line
The economic impact of cryptocurrencies is similar to a double-edged sword. On the one hand, they can be beneficial for the economy because they offer a digital alternative to fiat money, with plenty of benefits. However, cryptocurrencies are highly volatile, and countries and investors are still not ready for global acceptance.
