Will cryptocurrency ever be ‘official money’?

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Bitcoins - pic from CNN

The history of money has been a history of experiments….some good, some bad, and some ugly.

Barter trade lasted for quite a while, so in a sense it was relatively successful. But ‘official currencies’ have stood the test of time since the first official currency was minted by King Alyattes of Lydia in modern-day Turkey around 600BC.

But of late electronic payments have grown in significance, since some European banks introduced the most rudimentary of mobile money forms around 1999, reducing general reliance on physical currencies (ie, paper money and coins).

With the rise of cryptocurrencies in the first decade of the new millennium (the first decentralised cryptocurrency, Bitcoin, was created in 2009 by pseudonymous developer Satoshi Nakamoto) one question that has come to the fore is: could cryptocurrency be the future of money?

Well, for one thing, there have been some very queer forms of money in the past, from knife money, dolphin teeth, salt, squirrel pelts and wooden money, just to mention a few

And Zimbabweans are no strangers to bizzare forms of money, what with the ‘bearer cheques’, the ‘special agro-cheques’ and now the ‘bond notes’.

Anyway, it’s a common adage that money is anything that is commonly accepted by a group of people for the exchange of goods, services or resources.

So, will cryptocurrency crash and burn like some forms of money that have arisen in the past?

According to Investopedia.com, “a cryptocurrency is a digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of this security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.”

The most popular form of cryptocurrency that has captured the imagination of the world, and Zimbabweans is Bitcoin.

Bitcoin is a digital currency that no one really controls as users and developers use the same fundamental Bitcoin protocol.

Locally, individuals or corporates can buy or sell Bitcoin from the country’s only Bitcoin exchange – Golix.com (which recently introduced Zimbabwe’s first Bitcoin automated teller machine).

Although Bitcoin is yet to gain significant traction in the country there do exist some companies or merchants that accept Bitcoin payment, namely BitMari.com and BeForward.

The main attraction of Bitcoin in Zimbabwe is for making international payments due to the foreign currency shortages affecting the country. But globally it’s been used as a store of value, sort of like gold, whose value varies according to market developments.

Presently the price of Bitcoin on Golix.com is around $9 600, and on international Bitcoin exchange it’s priced around $6 900.

But, according to Investopedia.com, “because cryptocurrencies are virtual and do not have a central repository, a digital cryptocurrency balance can be wiped out by a computer crash if a backup copy of the holdings does not exist. Since prices are based on supply and demand, the rate at which a cryptocurrency can be exchanged for another currency can fluctuate widely.”

The rise in the popularity of Bitcoin is so significant that earlier in January BitInfoCharts estimated that there were between 20 000 and 200 000 Bitcoin millionaires around the world.

Notwithstanding this perceived growth in Bitcoin, central banks across the world have refused to recognise Bitcoin (or any cryptocurrency, for that matter) as a legitimate form of money.

Just to be clear, Bitcoin is just one of many cryptocurrencies being used around the world. Others include Litecoin, ZCash, Ethereum, Dash, Ripple and Monero.

In 2016, the Reserve Bank of Zimbabwe (RBZ) said it did not recognise Bitcoin as a legitimate currency, and it’s unlikely that that position has shifted.

But global central banks’ nonchalance towards cryptocurrency is unlikely to stop its growth.

Earlier this week, Coinbase, the leading United States marketplace for cryptocurrencies announced that it is working on ways to expand its business.

Analysts say the move by the San Francisco-based could help determine whether certain digital assets are securities and as such unearth a way to legally trade them.

The ‘official marketplace’ is still rather cold to cryptocurrency.

In February, European Central Bank (ECB) chair of its Supervisory Board Daniele Nouy told journalists that cryptocurrency was “not exactly very high on its to-do list”.

Cryptocurrency in its present form – like many innovations in the past – may eventually crash and burn (quite literally), but indications are that some financial institutions and technology services firms are increasingly appreciating the incredible potential of the digital currency form’s underlying distributed ledger technology.

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