The idea of a completely digital currency is entirely new to some people, especially when you consider the fact that physical currencies have existed for as long as man could create them. Stone and beads to start off, then precious metals, and for a time, paper notes that represented those metals. We are now in the beginning of a transition to a new type of currency, one that can not be held in a leather wallet or coin purse. The start of this transition has been long-coming, long before the idea of a fully virtual currency came to be. As soon as we started using paper notes to represent value, we started a trend of value placeholders that eventually spawned the Federal Reserve, which is the name of the central bank that controls the money supply in America. Fractional-reserve banking practices created a new class of money, something that many people simply take for granted or overlook all together.
Where Is All The Cash?
As you’re probably aware, there is a finite amount of physical paper money in US circulation. However, you might not be aware that the amount of US dollars in existence according to digital banking records is far more than the actual amount of physical money. In fact, it has been estimated that over 90% of all currency used in the world has no real world cash equivalent. That means if everyone called in their debts all at once, there would literally be only enough to pay back about 10% of all debt on Earth.
So where is all the cash? It never existed in the first place, and that is the problem with currencies controlled by a central bank. The Federal Reserve caused money to be created as a side effect of their banking practices. Even today, many people go about their lives without every coming into contact with real money. Cash gets directly deposited into your online bank account from a paycheck, which then gets automatically drafted out to pay bills. You need cash on rare occasions where some form of digital payment or credit card isn’t an option. If the United States can function on a nearly virtual currency, why can’t a system with a completely virtual currency be viable?
Currency As A Value-Holder
The bitcoin system is entirely self-contained, and it has no influence from outside regulations. As with all systems of currency, it is only stable as long as people believe that it is stable. It is this shared faith in a common investment that keeps cryptocurrencies in balance, and because they are not subject to outside regulation, they are free to operate at the will of the users, just like any other free market. Just because the units being traded don’t have a real world counterpart doesn’t mean they don’t have value. Bitcoins are considered by many to be an even truer form of currency than any before it, simply because of the way the closed system reacts to fluctuations in the price per unit.
Interestingly enough, it is technically possible to create legitimate coins that have a bitcoin value. In fact, it already has been done. The Casascius coins were created as a way of carrying a physical bitcoin, and it is an ingenious idea. Each coin looks and feels exactly like any other coin. They are roughly the size of a quarter, and they are printed with their bitcoin value and a unique 8-digit code on the front. The code is the first 8-digits of an address that is unlocked by a digital private key stored on a hologram inside each coin. Of course, you still need an app that can use the private key to access the actual bitcoin, but only someone with the physical coin can do that. This is akin to a credit card, which stores a code that allows the holder to access an account.
The Digital World
Everything is moving toward a new landscape of interaction through the internet. Technology is continuously advancing, and as it does, more and more people will find themselves using the internet for more things. A digital currency for the internet is just as important as a paper currency was for our forefathers. Bitcoin is the largest and most popular cryptocurrency, and anything might happen in the future. Early bitcoin adopters might be compared to the first stock investors hoping to get huge returns on their money, if they make the right moves and the currency thrives.
There is no reason to fear an all-virtual currency, at least any more so than our current system of mostly digital currency. Paper money and solid coins are a thing of the past. Cryptocurrencies are more convenient for the global marketplace, and they are not susceptible to outside influence. It’s only a matter of time before immaterial currencies become the new standard.