The recent boom of the cryptocurrency phenomenon, and its natural development, NFTs, is shaking the foundations of traditional banking and financial institutions. Since this is an entirely new world, where there is not even a universally accepted terminology, everything is much more difficult. And there are many questions surrounding these currencies, which in fact, are not considered “real” currencies that you can freely trade.
But without delving too much into the technical specifics of how cryptocurrencies are structured and how they are employed, we can notice that they have different uses. And becoming a universal payment system adopted to replace the current banking systems – at least for the moment – is not one of them.
Digitalization produces innovative technologies
The development of the technology that gave rise to cryptos is part of a series of epochal innovations that have rapidly changed business, which has – for a large part – moved on the net. Entire industries, thanks to digitization, have transferred part of their activities online: for example, gambling. The old-style brick-and-mortar casinos, thanks to the possibilities provided by fast wireless connections, can offer their services anywhere and in every moment.
Today, players can connect to sites such as Comeon online casino and take advantage of the most up-to-date and innovative slots without having to move from their living room. And the same goes for many other fields that have originated from this technical rush, such as cryptocurrency.
Let’s frame cryptocurrencies and their issues
Cryptocurrencies are a hybrid tool that lies somewhere between a currency and an investment. Since they are limited, they are subject to market demand, and this causes, mainly due to speculation, that their value changes, even abruptly. On the other hand, people can exchange them simply and transparently, so they can function as common currencies (e.g. as the US Dollar or the UK Pound) if both parties agree – but technically, it is considered like the two parties were performing a barter.
But there is a big problem at the core, linked with the relative youth of this technology. The crypto infrastructure, based on a distributed blockchain technology, is very expensive. That is, it has costs, which are not those of banking fees but are determined by a significant price in terms that are not immediately visible, but still technically limiting: transaction latency and energy consumption.
1 – Latency of deployment in the distributed network
One of the main features of the blockchain approach is the lack of a centralized database storing the exchanges. That is, all operations of cryptos are recorded in the blockchain. And since the historical memory of the transactions lies in the web, that is, in the whole network, there is a latency of the transactions. The updating of the transfer information takes time to propagate, because every “cell” attached to the blockchain has to be informed of the change and has to record it.
It is estimated that it takes about ten minutes nowadays to make a cryptocurrency transaction, and it takes around one day for it to be recorded in the entire blockchain structure. And anyone understands that this is just too much to manage real-time operations: if you have bought something using a crypto asset, you just cannot stay at a counter waiting for your payment to be processed for ten minutes. Of course, we are still in the infancy of the blockchain technology, so we expect that the transactions will become faster in the future, but this is the current situation.
2 – Energy Consumption
Several countries have banned mining (the creation of cryptocurrency), including the leading producer, China. Each transaction of Bitcoin – the most well-known currency – consumes a lot of energy, much more than what complex but efficient traditional banking tools consume. A rough calculation tells us that if the entire VISA transaction circuit passed over the Bitcoin network, it would swallow about 30 times the current energy consumption of the whole globe.
This means that it is impossible – as things are currently – to replace traditional banking networks with blockchain-based ones. We also have to add that newer cryptocurrencies are way less “energy-guzzling” than an old crypto like Bitcoin: however, they are still not ready to become a mainstream solution. So, do not throw away your old Mastercards yet!
Forecasts for the future: blockchain and NFTs
We must admit that the currency created by the mythical Satoshi Nakamoto – the Bitcoin – was the first of them all, and today, 13 years after its debut, it is considered a sort of dinosaur! It is not optimized, and modern third-generation cryptos are now much faster and more efficient.
However, the Bitcoin – and its underlying technology, the blockchain – has paved the way, and the next developments are still to be written. One of the first evolutions is NFTs, the Non Fungible Tokens that guarantee unicity to attached asset, a market that is skyrocketing right now, but we are sure that many other uses will follow.
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