The advancement of digitization has propelled certain countries, such as Finland, Great Britain, South Korea, and Australia, to the forefront. These nations have made remarkable progress in embracing digital technologies and have the potential to completely eliminate the reliance on cash in the future, instead opting for digital modes of payment.
The rise of online commerce has been a significant catalyst in this shift. In 2019, global revenues generated through online transactions reached a staggering $3.5 trillion. Even in the most economically disadvantaged countries, the widespread adoption of smartphones has become increasingly prevalent. Consequently, financial institutions are actively transitioning towards a fully digital business model, leading to the gradual phasing out of traditional brick and mortar bank offices.
In this context, the role of physical cash comes into question. While it still serves certain purposes, the production, transportation, and storage of physical currency require substantial financial investments. Moreover, the intrinsic value of many coins often falls below the cost of the metals and other materials used in their manufacturing.
It is worth noting that the United States stands as the foremost nation in terms of Bitcoin usage. The purchase and utilization of bitcoins are permitted in countries like Canada, the European Union, and France. However, in nations such as China, Saudi Arabia, and Qatar, strict prohibitions on any form of purchase exist due to concerns over volatility, energy consumption, potential instability, and the facilitation of illegal activities.
Acceptance is the initial barrier
Since October 2021, the European Central Bank has been deliberating about whether or not it should issue a digital version of the euro. If the digital version of the euro were ever implemented, it would be money issued by the central bank. If done correctly, this ought to provide for a greater degree of anonymity than digital payment systems.
Existing private cryptocurrencies provide a great degree of privacy, but users can still be tracked by using them. A digital payment system that does not rely on institutions to authenticate transactions. It is a peer-to-peer system in which any user can send and receive payments from any location.
Instead of exchanging physical currency in the real world, cryptocurrencies only exist as digital entries in online databases that characterize each transaction.
The ability to utilize cryptocurrencies anonymously, on a global scale, and without the need for intermediaries, like banks is one of the many benefits they provide. Even transfers of substantial funds may be completed in a matter of minutes throughout the globe.
A distributed public ledger known as the blockchain records all cryptocurrency transactions and is maintained by the currency’s proprietors. The total number of “wallets,” or digital wallets that may store digital assets, has seen significant growth around the globe in recent months. When everything is said and done, each transaction is recorded in the blockchain. It is quite challenging to do business in a really totally anonymous manner.
It is anticipated that in the not-too-distant future, “Economy 4.0” will make extensive use of digital currencies and other forms of electronic means of payment. Since they clearly offer added value on both the social and economic fronts, the question is not if they will be implemented and extensively utilized, but rather when, and in what form, they will do so.
The payment system is also being impacted by the dramatic rise in the use of cashless payment methods as well as the rising significance of digital currencies. Although it is sturdy, it is also sluggish, lacks flexibility, and is prohibitively costly.
“It’s gold for nerds.”
Stephen Colbert, Comedian
Sustainability - the major issue of cryptocurrencies
The production of crypto is known as “mining.” Mining cryptocurrencies is an exceedingly energy-intensive process that compromises the ability of governments around the world to reduce our reliance on fossil fuels that contribute to climate change. Effectively, millions of computational devices are competing to solve a complex but trivial problem. As long as the reward is sufficient, miners will endeavor to use more and faster mining machines to increase their odds of obtaining it.
As global concerns about the environmental impact of cryptocurrency continue to develop, more efforts have been made to reduce the carbon footprint and climate impact of cryptocurrencies.
As a result, an increasing number of investors are choosing to invest specifically in environmentally sustainable cryptocurrencies.
There are now Bitcoin alternatives that are beneficial to the environment. Many of these sustainable cryptocurrencies use Proof-of-Stake (PoS) rather than Proof-of-Work (PoW).
Risks associated
The abolition of cash, while having potential benefits, also carries certain risks and challenges that need to be considered.
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Financial Exclusion: Moving towards a cashless society can inadvertently exclude individuals who do not have access to digital payment methods or lack the necessary technological literacy. This could disproportionately affect vulnerable populations, including the elderly, low-income individuals, and those living in remote areas with limited internet connectivity.
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Privacy Concerns: Digital transactions leave behind a digital footprint, which raises concerns about privacy and data security. With the increased reliance on digital payment systems, there is a risk of personal financial information being compromised, leading to potential identity theft or unauthorized access to sensitive data.
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Technological Dependence: The complete reliance on digital payment systems makes societies more vulnerable to technological glitches, system failures, or cyberattacks. A disruption in digital infrastructure or a power outage could paralyze the entire financial system, leaving individuals unable to carry out transactions or access their funds.
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Increased Surveillance: The digitization of payments allows for extensive monitoring and surveillance of financial transactions. This raises concerns about the erosion of financial anonymity and the potential misuse of personal transaction data by governments, corporations, or malicious actors.
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Economic Implications: The abolition of cash may have unintended consequences on various economic sectors. Cash-dependent businesses, such as small retailers or informal markets, may struggle to adapt to digital payment systems, leading to potential job losses or economic disparities.
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Systemic Risks: Cash provides a certain level of financial stability as a physical medium of exchange. In times of economic crises, cash can serve as a backup option when digital systems falter. The complete elimination of cash could leave societies more vulnerable to financial shocks or disruptions in the financial system.
While a cashless future may appear to offer shiny benefits, it is important to acknowledge that there are still unresolved concerns and uncertainties that require careful consideration.
Until resolved, “Cash is King!”
