Dr. Dorothy Todd
5 December 2017
Cryptocurrency: A New Realm of
What if it was possible to instantly send money across the
globe directly to whomever you want, buy and sell renewable energy from your
neighbors, or secure your money from theft?
Right now, some of these are possible and perhaps tomorrow more will be
possible. How? The answer is cryptocurrency. Cryptocurrency is digital money which uses
cryptography, the process of encrypting communications, to secure transactions.
Today, there is a large gap between the opinions surrounding
cryptocurrency. A portion of critics and
researchers hail digital money as the way of the future for a variety of very
compelling reasons. Many businessmen
like NASDAQ’s CEO Bob Greenfield claim cryptocurrency to be the next iteration
of business technology and evolution.
They attribute these possibilities to the fact that the underlying technology,
called blockchain, could “Modernize, streamline, and secure typically cumbersome
administrative functions, and will simplify the overwhelming challenges private
companies face with manual ledger record-keeping” (Folkinshteyn 227). Yet,
more philosophical researchers such as Ph.D. student Mihaela Iavorschi see
cryptocurrency as the means to “monetary freedom” (Iavorschi 533). Some of these philosophers support digital
money as the perfect currency for a free market. Still others interested in the political
implications of cryptocurrency find it to be the “perfect match of technical
and institutional checks and balances” (Folkinshteyn 235), as no single entity has more power or control than
Although many prominent figures in business and research
have thrown their full support behind cryptocurrency, there are those who
remain skeptical. Some of these skeptics
have not denounced cryptocurrency, but remain hesitant and question its
implications. According to Daniel
Cawrey, a journalist at CoinDesk, they often ask “is cryptocurrency… evolved
enough yet to solve real problems for the mass market?” (Cawrey). However, the rest of these skeptics such as
Warren Buffet, a Wall Street magnate, have condemned cryptocurrency and labeled
it “a mirage.” (Barre 336). Even so,
many of them relent to the fact that digital money does hold promise (Folkinshteyn 230).
While the concept of digital money evokes mixed emotions,
cryptocurrency needs to be judged using concrete evidence. Even though cryptocurrency as a technology is
young and still in development, there exists enough proof that cryptocurrency
is a viable monetary alternative for the future. It has the promise to completely redefine, in
a beneficial manner, the ways in which we interact in our monetary system.
In order to explore the viability and implications of
cryptocurrency, this paper will first define what it is and thoroughly explain
its underlying technology called blockchain.
After defining blockchain, the paper will describe a few of
cryptocurrency’s many practical applications.
Next, this paper will explore the instability within cryptocurrency
exchanges. While this instability appears
to be solid support against digital money, this paper’s examination of the
success of Bitcoin, one type of cryptocurrency, will provide evidence that
cryptocurrency is safe. This process
will show that cryptocurrency is not only viable, but gaining popularity and finding
new uses across the globe which will change the way we use money.
One of the best ways to understand something new is to
compare it to what is already known. Therefore,
cryptocurrency should be described in terms of “fiat” currency and commodity
money. Fiat currency refers to money,
including the American dollar and the euro, whose value is backed by the
government that issued it. Because it is
not backed by anything of tangible value, fiat currency is very versatile and
easy to use. While the value of fiat can
be healthily regulated by the government, fiat is also only as stable as the
government backing it. On the opposite
side of the financial spectrum is commodity money, whose value relies on a
physical property. This money typically
includes coins of gold, silver, or another valuable metal. One of the most common arguments for a
commodity money is that it is always valuable, without relying on the opinion
of a single entity. This means that it
cannot be manipulated for any individual’s gain, nor will it undergo inflation.
What makes cryptocurrency unique is that it falls in between
fiat and commodity money. Arguably,
cryptocurrency is the best of both worlds.
Like fiat, digital money is not backed by anything of real value and is versatile. Additionally, digital money takes on two of
commodity money’s biggest advantages: it is not controlled by a government and it
is limited by how much can exist at any time.
Therefore, cryptocurrency is subject neither to corruption nor
Now that we have a general understanding of what
cryptocurrency is, this paper will describe the underlying blockchain
technology, which allows cryptocurrency to work successfully. Essentially, a blockchain is a digital ledger
(a record book or computer file for recording economic transactions). It is a continuously growing chain of digital
records called blocks, which are connected using cryptography. Blockchain allows cryptocurrency to function
without the control of a single entity because its ledger is public rather than
private. This public openness means that
everyone on the cryptocurrency’s network can view past and present
transactions. These transactions,
between any two parties using the cryptocurrency, operate on what is called a
“consensus mechanism” (Nakamoto 8). Whenever
a transaction is made, the consensus mechanism comes into play by requiring the
approval of the transaction by all parties on the cryptocurrency’s network. Therefore, as long as a majority of computers
on the network are legitimate, the integrity of transactions is kept. Realistically, a majority of users on the
network being hackers and all collaborating on the same task is nearly
Due to these key characteristics, blockchain has several important
features which attract the attention of many consumers. First, as previously mentioned,
cryptocurrency cannot be directly manipulated by a government. This means that cryptocurrency is not subject
to inflation caused by the printing of money and that governments cannot
arbitrarily take people’s digital money.
In addition to the first feature, payments in cryptocurrency do not have
to travel through a financial institution, such as a bank. Rather, you get to “become your own bank”
(Rosic). This bank of your own, as
researcher Daniel Folkinshteyn describes, “is like a bank that is open 24/7,
does not place limits on how much of your own money you can send or accept or
to whom or where in the world, does not charge maintenance fees, and does not
arbitrarily lock up your funds” (Folkinshteyn
232). The result of the previous two
features is that those who use cryptocurrency can enjoy financial independence
“But wait,” one may ask, “doesn’t all this freedom provide a
means for the black market to flourish, untouchable by law?” It turns out the opposite is true. The blockchain’s open ledger allows anyone to
view every transaction whether it is illegal or not. In fact, the FBI was able to use Bitcoin’s
ledger to track down bitcoin paid as bribes to two of its agents (Folkinshteyn
In addition to stopping crime, cryptocurrency has several important
applications. Probably the most obvious
application of cryptocurrency is as a medium of exchange, either replacing
conventional money or supplementing it.
Using cryptocurrency is easier than many people expect. In fact, a decent portion of people already
use the same method of payment that cryptocurrency requires: a cell phone. Cryptocurrency transactions in a store are
often as simple as opening an app on your phone and scanning a QR code.
Besides functioning as a currency with the previously
mentioned benefits, cryptocurrency also can find many uses in preventing
corruption, specifically in governments.
One example of these uses is Bidbit Auction in Ukraine. Founded by Lasha Antadze, Bidbit Auction is an
online auctioning system for state owned real estate. Ukraine suffers from very corrupt and
irresponsible government agencies.
Therefore, the goal of Bidbit Auction is to provide a secure and
transparent system for investors and officials.
Using blockchain technology, Antadze created a form of cryptocurrency in
which its digital coins are programmed to, rather than storing monetary value,
store property titles and land registries.
Because of blockchain’s open ledger, corrupt government officials cannot
modify the property information for personal gain (Folkinshteyn 234-236).
Furthermore, cryptocurrency has found use in the United
States’ electric industry. Electric
utility companies today are faced with the challenge of integrating renewable
energy into the power grid. One of the most
difficult aspects of this challenge is managing the power generated by solar
panels within common households. Part of
this difficulty is preventing too little or too much power from being on the
grid at any given time. The other part
is managing the electricity payments of households generating this power. Many utilities reduce the bills of customers
generating renewable energy and sometimes even pay the customers for their generated
energy. Utilities are trying to find
ways to simplify this process. One
option they are considering is allowing homeowners to directly buy and sell
this energy with each other. What
payment system should utilities use to do this?
As of now, the best candidate for this system is cryptocurrency. Cryptocurrency would allow an automated
system to be set up in which a household’s extra generated energy would enter
the power grid. When someone purchases
this extra energy, the system will pay the household. Therefore, cryptocurrency can allow renewable
energy to be more viable and profitable, possibly even persuading more people
to invest in it (Deatherage).
Even though cryptocurrency has the aforementioned benefits,
some people refuse to believe it is safe.
Many critics claim that, because it relies on the internet, digital
money is prone to theft by hackers. They
often point to Mt. Gox to support their argument. Mt. Gox was a Bitcoin exchange company
founded in Tokyo, Japan, in July of 2010.
Although it began as a small company, Mt. Gox was already handling over
70% of all global Bitcoin transactions within its first three to four years of
business. It was the largest Bitcoin
intermediary in the world. Then, on
February 25, 2014, hackers stole approximately 850,000 bitcoin, which was worth
nearly $450 million. Even while working
furiously, Mt. Gox was only able to recover 200,000 of the stolen bitcoin (McGlynn
The critics of cryptocurrency claim the Mt. Gox failure is
evidence against the use of cryptocurrency, however, the issue actually had
nothing to do with the security of cryptocurrency itself. Whenever someone acquires bitcoin the money
is stored in a digital wallet. The owner
of the currency has two primary options for storing this wallet: with a
personal computer or with a company.
Because many people consider their own computers to be vulnerable to
attackers, they often chose to instead rely on the security of a large
company. This was the case with Mt. Gox
and unfortunately it proved to be a poor decision. Like many exchanges, Mt. Gox used storage and
payment software without securing it.
This lack of caution allowed hackers to steal the bitcoin with relative
ease. As this information demonstrates,
the lack of security was not caused by cryptocurrency but by a specific exchange.
Further evidence proving cryptocurrency’s safety and
supporting its viability is found by examining the success of one particular
cryptocurrency: Bitcoin. When Bitcoin
was launched in 2009, most investors and economists thought it would never
reach wide use and never have value.
However, they were wrong. In
2009, Bitcoin was practically worth 0 USD per bitcoin. In 2010, it rose to $0.37. Bitcoin had a large
peak in 2014 at nearly $1,000 per bitcoin.
Since then, Bitcoin has steadily risen to nearly $11,000 per bitcoin (McGlynn
797)! This means that if you purchased
100 bitcoin for $30 in 2010, it would now be worth $1.1 million. Bitcoin is only becoming more and more
prevalent. Slowly, businesses across the
globe are allowing payments to be made with Bitcoin. Additionally, according to researcher Todd J.
Barre, “Bitcoin has now gained acceptance from an increasing number of
well-known merchants, including Dish Network, Overstock.com, Zynga, and the
National Basketball Association’s Sacramento Kings” (Barre 335). Therefore, cryptocurrency is becoming
As cryptocurrency rises in popularity, there are critics who
support it and critics who denounce it.
Many people don’t understand the technology and fear it to be unstable
and unsafe. However, taking a thorough
look into cryptocurrency and blockchain shows that cryptocurrency is one of the
safest forms of money in existence and its benefits can lead to further
financial freedom. Some people see this
freedom as a means for the rise of hackers and the black market. In reality, blockchain technology has the
capability to expose these criminals.
Additionally, cryptocurrency is finding many applications, ranging from
finance to the power industry to real estate.
While Bitcoin has had its highs and lows, overall it has enjoyed steady
growth in both value and popularity. The
goal of this paper is not to convince you to break open your piggy bank, pull
your money out of your mattress, or dig up your buried gold to invest in
Bitcoin, even if it may be a worthwhile investment. The real goal of this paper is to raise
awareness of cryptocurrency and show that it is not only viable, but capable of
making a real impact on people’s lives.
In 2013, the government of the island-nation of the Republic of Cyprus
stole all the savings out of its citizens’ bank accounts without warning. Currently, “peasants in Honduras can
literally be thrown off their land if they are unable to prove property
ownership via documentation of land titles.
Despite having lived there for generations, due to corruption it is a
relatively simple matter to bribe a local official to illicitly transfer
titles” (Folkinshteyn 228). Cryptocurrency and blockchain could have
prevented these government abuses, thefts, and corruption. Cryptocurrency and blockchain could
protect your financial security.
Cryptocurrency and blockchain could make solar energy more feasible,
therefore creating a greener environment.
Could you see yourself, one day, owning digital money?
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