Cryptocurrency in the mainstream

BSc Economics and Finance student Adam Barrs wrote a guest blog post for the Warwick Economics Summit Blog on cryptocurrencies. 

On where the idea came from, Adam added: “I’ve been involved in cryptocurrency trading since 2016 and I’ve seen it go from a very niche asset to something people have heard of, especially Bitcoin, though they may not understand it.

“I thought with the current discussions in central banks of using digital currencies and the role decentralised finance in developing nations, it seemed an opportune time to talk about it, especially as I feel a fair degree of affinity towards the cryptocurrency space.

“It seems well timed given Tesla has recently invested $1.5bn in Bitcoin and intends to use it as a payment method!”

Adam's blog starts: 

In the aftermath of the Great Recession, an innovation in the way we conduct transactions was born. Blockchain. The idea being that by distributing a ledger of financial records and decentralizing the flow of money, people would have more control over their financial wellbeing, as opposed to liquidity problems in banks providing the potential for loss of wealth. Blockchain provided users with enhanced security, protection from identity theft and a faster method of making payment.

Fast forward to 2020, and the instrument that demonstrated this new technology, Bitcoin, has recently exceeded $34,000. Market capitalisations are now in excess of $640bn, more than any publicly traded financial institution in the world. To put this in context, were Bitcoin ranked on the stock market, it would be the nineth most capitalised company globally.

While cryptocurrencies have enjoyed increased exposure in the media in the last few years, it is safe to say that they remain relatively unknown among the general populace, albeit this is poised to change. While payment methods on devices such as smart watches and mobile phones have become the norm for many people, cryptocurrencies have employed similar mechanisms for years, with one key difference; cryptocurrencies are debited instantly, not in three days while the bank takes time to clear the transaction. While economies of scale allow banks to enjoy lower transaction costs, they are simply unable to compete with how cheap the transfer of funds is using cryptocurrencies. This may help to explain why Ripple (XRP), has attracted attention from the World Economic Forum (WEF) as a digital currency that may be used for settlements by central banks.

Continue reading on the Warwick Economics Summit Blog.