Information technology is constantly developing, building on previous innovations, adjusting not only to market trends but also to the changing economic environment. The digital economy is a key factor in the development and rise of the global economy in modern realities. Therefore, there is a growing interest in cryptocurrency, which is created and transmitted using cryptographic methods, mainly based on blockchain technology (Wang, 2018). This paper aims to discuss the role of digital currency in the modern economy.
Cryptocurrencies are significantly different from conventional electronic money due to peer-to-peer architecture. The entire system that ensures transactions and stores information is based on a decentralized computer network. Thus, many computers around the world form a giant automatic electronic system operating around the clock (Caporale et al., 2018). Another significant difference between cryptocurrency and other types of electronic money is attributed to the special principles and methods of encryption. In general, the functioning of any cryptocurrency is mainly determined by the correctness of the algorithm embedded in the program, since there are no organizations that control this (Bulut, 2018). For example, if the user has made a mistake and incorrectly indicated the recipient, it will be impossible to withdraw electronic funds.
For the first time, cryptography was used in David Chom’s DigiCash system for confidential payments, but this system was centralized, and its use was short-lived. The term “cryptocurrency” began to be actively used in 2009 after the emergence of the Bitcoin payment system, which today is the most popular in the world (Wang, 2018). Its main goal was to create secure and stable cash on the Internet. Gradually, online stores and services began to accept cryptocurrency as payment, and its popularity increased. Bitcoin is based on the blockchain, which is a multifunctional and multi-level information technology that is designed for reliable accounting of various assets. It is a chain of data blocks that are constantly growing as miners add new information about the latest transactions (Bulut, 2018). Information about a specific transaction is encoded, and miners find cryptographic hash to verify it. The convenience of this technology is that users can see when and for what amount the transaction was made. At the same time, all personal information about the sender and recipient is not available.
Blockchain technologies serve as an alternative payment system, which, unlike traditional payment systems, is not controlled by either the state or banks. A distinctive feature of this system is that the data storage takes the form of a linear chain, therefore, there is no need to involve a central controlling body (Caporale et al., 2018). Adding new transactions is carried out only by network users. Thus, for the digital economy, the blockchain system is a distributed database consisting of separate blocks in the form of a continuous chain, which stores both transactions and data of the wallets (Bulut, 2018). This explains the fact that not only cryptocurrency finds its application in the blockchain system. Each cell of the blockchain includes a timestamp and a link to the previous block, so it can be virtually endless.
Cryptocurrency can affect existing currencies in the future if it is recognized by the world society. However, it is still considered a monetary surrogate, since it is not issued by the state and is a substitute for legal tender. Cryptocurrency is a financial instrument since it can be used as a tool for generating speculative income (Wang, 2018). Many countries cannot decide whether it is worth officially allowing cryptocurrency or not since it can be a threat to national security due to its anonymity and lack of state control. The role of central banks in its development is extremely important since this technology is directly related to monetary policy and the functioning of national payment systems (Wang, 2018). There are prerequisites for creating a general structure for regulating this phenomenon by the world community, although questions arise about the advisability of external influence since digital currencies are decentralized and independent.
Many cryptocurrency assets are global in terms of distribution, although they provide a narrow segment of users. Although their scale of emission is insignificant, they are growing at a rapid pace and changing the demand for existing currencies. With the popularity of cryptocurrency, part of the capital circulating on stock exchanges began to flow into the new technology, causing an explosive increase in their rate (Caporale et al., 2018). However, this factor has generated inorganic demand associated only with short-term plans of exchange players to extract high speculative income. In developed countries, the demand for cryptocurrency is associated with the loyal attitude of the authorities, the presence of a regulatory framework, and a high income of citizens ready for such economic experiments (Wang, 2018). In developing countries, the population tries to escape from national currencies to more reliable ones, regardless of the position of the national authorities.
Cryptocurrency is not backed by any real value, which is considered the main problem of its implementation. In the meantime, it is mainly accepted only as a financial instrument. It is an independent, decentralized, and highly secure potential currency. However, many problems prevent this technology from widespread use, such as the monopolization of the settlement system, gaining control over turnover, high cost of mining equipment, and insufficient technical development. Neither the state nor banks can influence the course of payments since cryptocurrency is based on blockchain, a peer-to-peer distributed storage system. The fact that its value is determined solely by the confidence of depositors makes it unreliable. Cryptocurrencies are likely to enter the lives of the future and even present generations. However, to achieve this, it will be necessary to solve many technological, legal, and economic issues.
References
Bulut, A. (2018). Cryptocurrencies in the new economy. Journal of International Trade, Logistics and Law, 4(2), 45-52.
Caporale, G. M., Gil-Alana, L., & Plastun, A. (2018). Persistence in the cryptocurrency market. Research in International Business and Finance, 46, 141-148.
Wang, A. W. (2018). Crypto economy: How blockchain, cryptocurrency, and token-economy are disrupting the financial world. Simon and Schuster.