What is trending?
‘Cryptocurrencies’ are digital user-generated currencies based on cryptography, or code-cracking. Code crackers unlock a finite supply of coded units, which in turn bestows ownership and commonly agreed value to the person who decodes the unit. This may sound like science fiction, but the reality is cryptocurrencies are here, and here to stay.
Virtual money is now a reality.
Why it’s important?
Virtual currencies are not just the play things of cyber nerds and computer hackers; they have moved into the mainstream.
If you are smart or lucky enough to own them; you can now buy everything from pizza to consulting services with the world’s first and largest crytopcurrency: *Bitcoin.
In fact, according to the Mail and Gaurdian, one New Yorker is trying to sell his two million dollar apartment – for its equivalent value in bitcoins.
But even more importantly, you can now exchange bitcoins on the open market, at a rate of 146.95 US dollars to a single bitcoin. This means the market has recognised the value of this invisible, un-backed currency.
There are already over 11 million bitcoins in existence, collectively worth over a billion US dollars.
That’s a lot of value bestowed upon a currency that was only invented in 2009 by an anonymous computer genius.
Th massive value is attributed to the scarcity of the currency. Bitcoins are notoriously difficult to ‘mine’ (or decode) and the algorithm the currency is based on ensures that only 21 million bitcoins will ever be issued. This means that over time bitcoins could become more valuable than gold.
In fact, it is predicted that in our lifetime, we will see entire luxury homes sold for a single bitcoin.
What’s the butterfly effect?
If virtual currencies catch on, we face a fundamental shift in global trade and monetary systems.
Virtual currencies are not backed by gold or governments, their store of value lies solely in the value users attach to it (so not so different from today’s post-gold-standard paper money, really, when you think about it).
They are also completely anonymous – the currency is stored virtually and users are identified and attached to their ‘money’ by a private password and a string of randomly generated numbers. That means you can buy and sell goods without knowing anything about who (or what) you are transacting with.
In addition, virtual currencies are not bound by geography or country-specific exchange rates.
And, because they ‘live’ online they cannot be seen or stolen, or taxed.
Governments and authorities will not be happy when (not if anymore, when) the virtual, anonymous, borderless economy grows larger than their own tightly controlled and heavily reserve-bank controlled currencies.
After all, the anonymity and lack of government control makes virtual currencies the perfect way to launder dirty money and conduct illegal black-market trade in drugs, human trafficking, terrorism and the like.
In June this year, the bank of Thailand was the first government organisation to officially ban bitcoins in its country.
But don’t think that this will stop the Bitcon movement.
Just think about it: Bitcoins are one completely virtual and virtually untraceable. As long as you can access the internet, you can access and use your bitcoins. And no government or law can stop you.
The pioneers and global hotspots?
Although Bitcoin is the largest, best-known crytocurrency, it is already facing competition.
All the indications point to virtual currencies being the next big thing. With public trust of governments and big banks at all-time lows, in the wake of the global financial crisis, it is no surprise.
Just think about it: Third world economies in Africa and India have massive populations, unstable currencies (just think about Zimbabwe’s rampant inflation) and huge, growing mobile smartphone penetration. It’s only a matter of time before Bitcoins and their sister cryptocurrencies catch on amongst the entrepreneurial, yet desperate populations of these emerging markets. When they do, their growth will be rapid and unstoppable.
To learn more about the Bitcoin movement, and perhaps even try mining or earing some for yourself, go here.
By: Bronwyn Williams
Bronwyn is an insatiably curious avid reader and an amateur psychologist who takes a keen and amused interest in observing the human condition.
She is constantly astounded at how predictable the world is once one is aware of the underling historical cycles shaping the trends driving our society forward.
*NOTE: “Bitcoin” with a cap “B”refers to the currency and “bitcoin(s)” with a small “b” refers to a unit of the currency.
Image credit: Gallo Images/ Getty Images