From the 2009 launch of Bitcoin to today, the cryptocurrency industry has seen phenomenal growth in both awareness and ability. As many in the industry look to the future and what place cryptocurrencies will have in the global financial markets, a new research paper has been released that offers a detailed study into the subject. Looking into the ways in which digital currencies can compete, the new paper sets out the ways in which digital currency can become as viable as fiat currency solutions.
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Looking back from the initial roll out of Bitcoin in 2009 through to the position of the cryptocurrency industry as a whole today, the rise has been nothing short of dramatic. While the industry still has a long way to go to achieve uniform acceptance around the world, it is sometimes easy to forget just how far it has already traveled. There are many reasons behind the massive growth, but the question remains can digital currencies every really compete with Fiat currency on the global market?
A research paper recently released by an economic adviser at the Federal Reserve Bank of Philadelphia Daniel Sanches and Jesús Fernández-Villaverde from the University of Pennsylvania looks at that question and seeks to take an academic look at this. The paper builds a model of competition among currency use and seeks to dissemble how digital currencies and competitors interact with each other. While the paper concludes that the answer is only sometimes, it does seek to highlight the way in which cryptocurrency can compete.
Here the authors note that it is the internet that has created the environment that allows digital currencies to compete effectively. For many within the industry the internet and digital currencies are inextricably linked and this conclusion may seem obvious, however looking beyond the obvious link between the mechanics of blockchain and the internet it offers some interesting observations about the rise of digital currencies so far and the opportunities for the industry moving forward.
In particular, the paper notes that throughout history, issuance of currency and the banking system have been linked for logistical reasons. The central location in the network of payments ensured banks were always best placed to introduce currency into circulation. However, the internet has broken that relationship and enabled digital currency to be circulated without the banking system itself, the logistics that became the norm for the banking industry worldwide simply no longer apply after the growth of easy internet access for the majority.
For the industry itself it offers ideas and opportunities, with an advantage for digital currencies being seen due to the ability to separate banking and distribution of currency, the increased focus on mobile currency management and payment solutions and ever increasing reliance on mobile connected digital devices, be they smartphones or tablets, can only increase that separation and present further opportunities to digital currencies.