Money can exist in a variety of different forms. Till now, bank notes have reigned supreme amongst all the categories of money. But the future of currency is changing quite dramatically thanks to innovations and problems such as pandemics, inflation scares and increased interest rates.
Should you perhaps use gold as a safe haven for your hard-earned money? Or maybe digital assets such as cryptocurrency could be a better option?
Decoding money and understanding all the ins and outs is necessary before making such decisions.
Let’s dive in.
What is money, and how is it different from currencies?
A common misconception is that money and currency mean the same thing but do not. In fact, some people refer to money as “good money” and currency as “bad money.”
Gold, for example, is a category of money relatively safe from government harm, inflation scares, and market crashes. The reason being gold has an intrinsic value, and currency such as bank notes do not have an inherent value and are ‘created out of thin air.
For example, currencies such as the US dollar are controlled by centralized organizations, meaning their value can decrease at any given time according to how the central banks decide.
Famous investment mogul and Shark Tank judge Kevin O’Leary says:
“Right now in a bank account, you’re getting very little [interest], And inflation is over 6%. So you’re actually losing money every 12 months.”Kevin O’Leary in an interview with CNBC
On the other hand, gold has an intrinsic value as it is a finite type of asset and cannot be printed like bank notes. Since gold has a limited supply, its value will always increase and is free from inflation. Whereas the USD is affected by inflation thanks to the central banks repeatedly printing USD currency notes time and time again.
Currently, the US is seeing up to 8% inflation rates, meaning the USD is decreasing in value by 8% each year.
Is it possible to create your own currency?
Innovators have sought to create their own form of money to eliminate their problems. Although anybody can create their own money, a few challenges exist. Doing so will require a group or a community ready to go the distance with you. For example, your neighborhood could team up and solve its problems by creating its own currency and moving away from inflation-affected banknotes.
The currency notes would then be distributed digitally (using virtual assets) or physically (using your own currency notes) among a set number of people using an exchange.
But it does not end there.
There have to be several utilities for your new currency to generate interest and attract new people, including start-up companies and business owners inside your neighborhood. The process is easy to say but hard to accomplish without a like-minded group of people.
One way to create a community would be to use your new currency to support low-income individuals.
Furthermore, it can get quite challenging to scale up the exchange service as more people wish to buy the new popular currency in town. There will also have to be a group of regulators to ensure the currency is used safely and not in any illegal schemes.
A large budget will also be necessary to print the currency, promote it to businesses and community members, and pay a development team to create a secure exchange.
Nonetheless, such problems can be taken care of in due time, but the one thing a currency needs to flourish is utility. Half the battle is won if you can figure out how to incentivize people to use your new currency.
What are the best existing alternatives to banknotes?
In historic times, gold was among the most valuable physical currencies. Apart from banknotes, there are not many physical currencies heavily used today.
Although currencies like the USD will continue to be prevalent, community-created coins have increased in popularity. They have already partially replaced the USD in places such as the Berkshires. BerkShares, for example, are only accepted in the Berkshires, a region in western Massachusetts. According to the website, more than 400 Berkshires businesses accept the currency, and 13 banks serve as exchange stations.
“The currency distinguishes the local businesses that accept the currency from those that do not, building stronger relationships and greater affinity between the business community and the citizens.”berkshares.org
Using a bank as an exchange can be a good alternative, but software wallets may be an even better option. Wallet apps such as Cash App, PayPal, and Trust Wallet have empowered mobile payment services to receive and transfer US Dollars, Euros, and British Pounds.
Furthermore, digital currencies, such as Bitcoin, have taken over the globe in terms of being fast, effective, and cheap.
Bitcoin has famously been termed “digital gold” by many crypto enthusiasts.
What are digital currencies, and how does one store such an asset?
Digital currencies in the form of cryptocurrencies such as Bitcoin exist on blockchain networks. Bitcoin, created by Satoshi Nakamoto, is meant to be a medium for daily transactions.
According to reports, Bitcoin is also the highest-performing asset of the decade, with an annualized return of 230%.
The reason for this massive increase in value is due to the decreasing supply of Bitcoin and the increasing utility behind it. What’s more, is that Bitcoin is entirely out of the control of governments or any third-party organization. Such decentralization gives a feeling of safety in the minds of somebody looking for a safe haven to store their hard money.
Another popular cryptocurrency class is stablecoins such as USDT, USDC, DAI, and BUSD. The price of these tokens is always meant to be pegged to USD 1.
Today, one of the most trending cryptocurrencies is utility tokens designed to provide value by holding the token. This could be as simple as buying and holding a token called BNB to automatically reduce transaction fees on Binance.
Or investors may buy Polygon, the native coin of the Polygon Network. These tokens can be used to pay transaction fees while using the network. Additionally, Polygon can be used to govern the network itself, or it could be staked to earn passive income.
Cryptocurrency as a transaction medium brings several benefits like:
- Breakneck transaction speeds: International bank transfers can take up to 48 business hours. On average, sending money in the form of Litecoin takes less than two minutes.
- Infinitesimal transaction fees: Each transaction, irrespective of size, has fixed fees, usually ranging from a few cents to just a few dollars. Litecoin, for example, costs about $0.007 for each transaction.
- Transparency and security thanks to blockchain technology: Blockchain is a digital ledger that is immutable and is online at all times. It is used to verify transactions and store all details simultaneously. Blockchain networks such as the Bitcoin network are powered by millions of miners worldwide who allocate processing power to validate Bitcoin transactions.
How to store and send money in a decentralized fashion?
Bank transfers are notorious for being delayed, shady, and expensive. Sometimes banks may take a little longer to process large transactions for reasons they do not wish to specify. Additionally, banks can also block your credit card if they detect credit card transfers to a website they think is shady but is not. These reasons are why storing money inside a decentralized wallet can be a great option.
In the olden days, people had to store money or metals inside vessels and crates at home. But banks changed all of that in a short time. However, storing money inside a bank owned by a third-party organization can be unsafe.
In case of bankruptcy, cyberattacks, and criminal heists, a bank may not allow withdrawals. For these reasons, decentralized wallets – self-owned and not controlled by anybody – have grown immensely popular over the last few years.
It is lightweight, secure, and can be used to send and receive digital assets (cryptocurrency, NFTs, etc.) at any time from anywhere. A crypto wallet associated with a decentralized domain name makes peer-to-peer payment easier. However, as is with everything in the crypto world, decentralized wallets carry a few security risks of their own.
Forgetting the seed phrase (password required to unlock the wallet), losing the device associated with the wallet, or sending funds to a malicious account are just a few risks users have to bear while using a decentralized wallet.
At times, there might be an error in the code that could lead to cyberattacks. For those reasons, another option would be to use wallets that are protected by two-factor authentication and biometric identification to ensure no one else can access the wallet; The wallet infrastructure providers leverage multi-signature technology to improve security mechanisms.
Users may opt for a multi-layered insurance policy to protect the total value of client assets when things go wrong (i.e., hacking, server-side attacks, DDoS attacks, etc.).
Two types of decentralized wallets are used to store digital assets: hot wallets and cold wallets.
Hot wallets like Metamask are connected to the internet and are used to send and receive cryptocurrency.
On the other hand, cold wallets are offline wallets that exist as computer/mobile applications or physical gadgets like Ledger Nano S. Another difference is that most cold wallets, including Ledgers, cannot send cryptocurrency independently.
To convert traditional currencies into digital currencies in a decentralized fashion will require a decentralized wallet such as Metamask. Metamask allows users to buy crypto using credit cards, mobile payments, and bank transfers.
Users can also use decentralized exchanges to securely convert their money into digital assets. P2P marketplaces are another option wherein traders can buy and sell currency from one another without the risk of losing funds, thanks to escrow protection offered by the marketplace.
Digital currencies, gold, Amazon coins, community currencies, and other alternatives to banknotes will continue to thrive as long as people continue to grow unsatisfied with traditional currencies.
Although it may take a while for a solution to become more prevalent than fiat currencies, the future is growing at a tremendous pace, and there is a high likelihood that cryptocurrencies can be a viable alternative.
So what are your thoughts?
Can traditional currencies save themselves from inflation and politics-driven manipulation?
Or will they remain as is?
Please leave your thoughts in the comment section down below.
Mortuza is a certified Digital marketer with a Master’s degree in International Economic Relations (Spec. International Business).
An entrepreneurial professional, crypto native, and deeply involved in web3, i.e., blockchain, NFT & metaverse community. The author spends hours researching all the exciting new trends in the broader business world.