No matter who you are, what job you do, or what you buy, money is your direct connection to the global economy.
Most of us get our money from our jobs, which is paid in the local currency of where we work. Doing programming in San Francisco, US? You’re likely paid in US Dollars. Providing healthcare in Bangalore, India? Your customers likely pay in Rupees.
Historically we use local currencies because that’s what we receive in income. There hasn’t been any other options. But with cryptocurrencies becoming more popular, that will all begin to change.
Cryptocurrencies represent an alternative financial system that provide another option to our local currencies, not just for paying for goods, but for receiving income as well.
Getting paid and using money
To get income, we have to either offer a service or sell products to people. The local currencies we receive in return are almost always fiat currencies. Fiat currency is simply money that is not backed by a physical form of value, such as gold. Instead, it is backed by the governments who issue it and their supporting economies. Fiat currency is by far the most common currency type and there is a very interesting history of how it came to dominate as the primary form of money.
Currency is useful as income and money because it operates as a medium of exchange. This allows people with different goods to transact and trade, even if neither party wants the other good being offered at that moment.
If you sell loaves of bread for a living and you need shoes, you need a way to convert the bread’s value to purchase shoes. Without medium of exchange money, you would need to find someone with suitable shoes who would also like your bread. Trading goods directly this way is called barter, and while it works in some instances just fine, it doesn’t work in large, complex economies.
Cryptocurrency becomes money
Unlike fiat currencies, which are obtained through selling goods or services, cryptocurrencies are usually obtained through buying them directly on dedicated exchanges or mining them.
For those who are ambitious enough to mine cryptocurrencies, they need to buy mining hardware for the processing power required to complete cryptocurrency mining computations. Because of the high intensity of computation required in mining, you also need access to lots of electricity.
Once cryptocurrencies are obtained they can be sent or transferred to digital wallets. These ways of obtaining cryptocurrency currency highlight a fundamental difference between cryptocurrencies and fiat currencies today. When your two primary options for getting cryptocurrency is using an isolated financial exchange or buying and setting up a mining operation, no wonder so few people get involved!
Yet, cryptocurrencies don’t have to be this hard to obtain. As they become a more meaningful part of our global economy, options for receiving cryptocurrency as income and using it in commerce will grow. There are three important elements that will allow cryptocurrency to become mainstream money:
1. Salaries and wages paid in cryptocurrency
Once cryptocurrency can be earned as income, it will create a natural flow into the rest of the economy. Historically the barrier to getting paid in crypto has been their uncertain legal and regulatory status. Lack of access points and segregation of cryptocurrency from everyday financial experiences (e.g. your bank) has also formed barriers.
Recently, however, many of those challenges have been overcome as regulators become more educated and understand the possible benefits of cryptocurrency. Certain organizations have already subscribed to the idea of paying their employees in cryptocurrency. GMO Internet, Zabo, and Buffer are three of the companies that have become early adopters of paying salaries in cryptocurrency.
2. Merchant services and financial institution adoption
For cryptocurrencies to become a means of payment for goods bought and services offered, there must be greater acceptance and awareness by supporting merchants and financial institutions.
Most merchants need help understanding what cryptocurrency is and how to accept it. They rely on point-of-sale (POS) infrastructure that, in most cases, doesn’t currently accept cryptocurrencies. As cryptocurrency-supporting POS infrastructure becomes more common, more merchants will learn about and ultimately accept cryptocurrency as payment.
Financial institutions also have an important part to play. Once a merchant accepts cryptocurrency as payment, where does it go? Banks and payment processors provide much the technical support behind running a business and it is crucial that they begin to understand and support cryptocurrencies as well.
3. The legal nature of cryptocurrencies
For cryptocurrencies to be globally accepted, it has to be legal.
Currently, some countries have banned or threatened to ban trading and exchange of cryptocurrencies. This limits the global adoption of cryptocurrency and is a heavy blow to adoption in the banning country.
To solve this problem, leaders and policy makers must be educated on cryptocurrency. This includes understanding the possible benefits of cryptocurrency and blockchain technology, not just for the financial industry, but for many other industries as well.
Fortunately regulators in many major countries, including the United States, have been open-minded and measured in their response to cryptocurrency. The most common cryptocurrencies, including Bitcoin and Ether, are increasingly supported by reputable companies and have fit into existing regulatory frameworks. As primary support comes from leading world economies on cryptocurrency, it will provide a framework for other countries, and eventually lead us to a common form of money that is genuinely suited for the global economy.